##### 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, 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
    
    (I.R.S. Employerincorporation or organization)
    
    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
Yes o No
  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,
2009, (Unaudited) and December 31, 2008
    
    
    2Consolidated Statements of Operations, Three Months
Ended September 30, 2009 and 2008 (Unaudited)
    
    
    4Consolidated Statements of Operations, Nine Months
Ended September 30, 2009 and 2008 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows, Nine Months
Ended September 30, 2009 and 2008 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 4. Controls and Procedures
    
    
    42Part 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. Submission of Matters to a Vote of Security Holders
    
    
    45Item 5. Other Information
    
    
    45Item 6. Exhibits
    
    
    45Exhibit 10.8Exhibit 10.9Exhibit 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)
 September 30,
    
    
    December 31,Assets
    
    2009
    
    
    2008(Unaudited)Investments:Fixed maturities available-for-sale, at fair value

(cost: $335,817 and $494,034 in 2009 and
2008, respectively)
    
    $
    339,290
    
    
    
    485,155Fixed maturities held-to-maturity, at amortized cost

(fair value:$200,496 in 2009)
    
    
    202,197
    
    
    
    Equity securities available-for-sale, at fair value
(cost: $42,414 and $42,908 in 2009 and
2008, respectively)
    
    
    52,894
    
    
    
    43,000Mortgage loans on real estate
    
    
    1,462
    
    
    
    339Policy loans
    
    
    31,860
    
    
    
    28,955Real estate held for sale
    
    
    3,007
    
    
    
    4,156Real estate held for investment (less $352 and $283 accumulated
depreciation in 2009 and 2008, respectively)
    
    
    6,178
    
    
    
    4,717Other long-term investments
    
    
    74
    
    
    
    680Short-term investments
    
    
    2,556
    
    
    
    2,250Total investments
    
    
    639,518
    
    
    
    569,252Cash and cash equivalents
    
    
    77,916
    
    
    
    63,792Accrued investment income
    
    
    7,037
    
    
    
    7,423Reinsurance recoverable
    
    
    12,059
    
    
    
    13,241Deferred policy acquisition costs
    
    
    113,656
    
    
    
    109,114Cost of customer relationships acquired
    
    
    35,385
    
    
    
    33,805Goodwill
    
    
    16,809
    
    
    
    15,687Other intangible assets
    
    
    1,088
    
    
    
    1,073Federal income tax receivable
    
    
    
    
    
    
    2,090Property and equipment, net
    
    
    6,151
    
    
    
    6,466Due premiums, net (less $1,493 and $2,217 allowance for doubtful
accounts in 2009 and 2008, respectively)
    
    
    8,152
    
    
    
    8,958Prepaid expenses
    
    
    1,079
    
    
    
    454Other assets
    
    
    970
    
    
    
    921Total assets
    
    $
    919,820
    
    
    
    832,276
    2




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Financial Position, Continued
(In thousands, except share amounts)
 September 30,
    
    
    December 31,Liabilities and Stockholders Equity
    
    2009
    
    
    2008(Unaudited)Liabilities:Future policy benefit reserves:Life insurance
    
    $
    580,013
    
    
    
    547,621Annuities
    
    
    36,585
    
    
    
    34,025Accident and health
    
    
    6,734
    
    
    
    7,442Dividend accumulations
    
    
    5,550
    
    
    
    4,795Premiums paid in advance
    
    
    19,571
    
    
    
    18,566Policy claims payable
    
    
    9,936
    
    
    
    9,318Other policyholders funds
    
    
    7,974
    
    
    
    7,929Total policy liabilities
    
    
    666,363
    
    
    
    629,696Commissions payable
    
    
    1,893
    
    
    
    2,350Federal income tax payable
    
    
    727
    
    
    
    Deferred Federal and state income tax
    
    
    7,060
    
    
    
    3,951Payable for securities in process of settlement
    
    
    13,793
    
    
    
    Warrants outstanding
    
    
    1,892
    
    
    
    4,973Other liabilities
    
    
    12,637
    
    
    
    12,052Total liabilities
    
    
    704,365
    
    
    
    653,022Commitments and contingencies (Notes 8 and 10)Cumulative convertible preferred stock  Series A
(Series A-1 - $1,000 stated value per share, 6,250 shares authorized, issued and outstanding in
2008; Series A-2 - $935 stated value per share, 5,000 shares authorized, 4,014 issued and
outstanding in 2008)
    
    
    
    
    
    
    7,713Stockholders Equity:Common stock:Class A, no par value, 100,000,000 shares authorized,
51,822,831 shares issued in 2009 and
48,781,753 shares issued in 2008, including
shares in treasury of 3,135,738 in 2009 and 2008
    
    
    256,703
    
    
    
    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
    
    
    (46,091
    )
    
    
    (55,432
    )Accumulated other comprehensive income (loss):Unrealized gains (losses) on available-for-sale securities, net of tax
    
    
    12,670
    
    
    
    (5,711
    )226,466
    
    
    
    182,552Treasury stock, at cost
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    215,455
    
    
    
    171,541Total liabilities and stockholders equity
    
    $
    919,820
    
    
    
    832,276
   3




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
Three Months Ended September 30,
(In thousands, except per share amounts)
(Unaudited)
 2009
    
    
    2008Revenues:Premiums:Life insurance
    
    $
    34,589
    
    
    
    32,837Accident and health insurance
    
    
    371
    
    
    
    384Property insurance
    
    
    1,192
    
    
    
    820Net investment income
    
    
    7,413
    
    
    
    7,543Realized gains (losses), net
    
    
    1,006
    
    
    
    (226
    )Increase in fair value of warrants
    
    
    
    
    
    
    (1,483
    )Other income
    
    
    273
    
    
    
    288Total revenues
    
    
    44,844
    
    
    
    40,163Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    14,494
    
    
    
    13,855Increase in future policy benefit reserves
    
    
    10,305
    
    
    
    10,214Policyholders dividends
    
    
    1,827
    
    
    
    1,636Total insurance benefits paid or provided
    
    
    26,626
    
    
    
    25,705Commissions
    
    
    8,435
    
    
    
    8,819Other underwriting, acquisition and insurance expenses
    
    
    6,772
    
    
    
    7,312Capitalization of deferred policy acquisition costs
    
    
    (5,306
    )
    
    
    (5,712
    )Amortization of deferred policy acquisition costs
    
    
    4,303
    
    
    
    3,861Amortization of cost of customer relationships
acquired and other intangibles
    
    
    946
    
    
    
    676Total benefits and expenses
    
    
    41,776
    
    
    
    40,661Income (loss) before Federal income tax
    
    
    3,068
    
    
    
    (498
    )Federal income tax expense
    
    
    820
    
    
    
    316Net income (loss)
    
    $
    2,248
    
    
    
    (814
    )Net income (loss) applicable to common stockholders
    
    $
    2,091
    
    
    
    (1,604
    )Per Share Amounts:Basic and diluted earnings (loss) per share of Class A common stock
    
    $
    0.04
    
    
    
    (0.04
    )Basic and diluted earnings (loss) per share of Class B common stock
    
    $
    0.02
    
    
    
    (0.02
    )
   4




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
Nine Months Ended September 30,
(In thousands, except per share amounts)
(Unaudited)
 2009
    
    
    2008Revenues:Premiums:Life insurance
    
    $
    101,858
    
    
    
    97,178Accident and health insurance
    
    
    1,135
    
    
    
    1,178Property insurance
    
    
    3,501
    
    
    
    3,559Net investment income
    
    
    21,733
    
    
    
    22,487Realized gains (losses), net
    
    
    2,827
    
    
    
    (210
    )Decrease (increase) in fair value of warrants
    
    
    3,081
    
    
    
    (1,674
    )Other income
    
    
    796
    
    
    
    852Total revenues
    
    
    134,931
    
    
    
    123,370Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    44,254
    
    
    
    41,663Increase in future policy benefit reserves
    
    
    28,021
    
    
    
    24,944Policyholders dividends
    
    
    4,742
    
    
    
    4,590Total insurance benefits paid or provided
    
    
    77,017
    
    
    
    71,197Commissions
    
    
    25,462
    
    
    
    25,906Other underwriting, acquisition and insurance expenses
    
    
    21,889
    
    
    
    21,243Capitalization of deferred policy acquisition costs
    
    
    (16,257
    )
    
    
    (16,876
    )Amortization of deferred policy acquisition costs
    
    
    11,715
    
    
    
    11,529Amortization of cost of customer relationships
acquired and other intangibles
    
    
    2,630
    
    
    
    2,155Total benefits and expenses
    
    
    122,456
    
    
    
    115,154Income before Federal income tax
    
    
    12,475
    
    
    
    8,216Federal income tax expense
    
    
    3,134
    
    
    
    3,303Net income
    
    $
    9,341
    
    
    
    4,913Net income applicable to common stockholders
    
    $
    6,836
    
    
    
    3,112Per Share Amounts:Basic earnings per share of Class A common stock
    
    $
    0.14
    
    
    
    0.07Basic earnings per share of Class B common stock
    
    $
    0.07
    
    
    
    0.04Diluted earnings per share of Class A common stock
    
    $
    0.09
    
    
    
    0.07Diluted earnings per share of Class B common stock
    
    $
    0.04
    
    
    
    0.04
   5




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
Nine Months Ended September 30,
(In thousands)
(Unaudited)
 2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    9,341
    
    
    
    4,913Adjustments to reconcile net income to net cash
provided by operating activities:Realized (gains) losses on sale of investments
and other assets
    
    
    (2,827
    )
    
    
    210Net deferred policy acquisition costs
    
    
    (4,542
    )
    
    
    (5,347
    )Amortization of cost of customer relationships
acquired and other intangibles
    
    
    2,630
    
    
    
    2,155(Decrease) increase in fair value of warrants
    
    
    (3,081
    )
    
    
    1,674Depreciation
    
    
    908
    
    
    
    827Amortization of premiums and discounts on fixed maturities and short-term investments
    
    
    1,466
    
    
    
    216Deferred Federal income tax (benefit) expense
    
    
    (819
    )
    
    
    2,562Change in:Accrued investment income
    
    
    434
    
    
    
    887Reinsurance recoverable
    
    
    1,258
    
    
    
    456Due premiums and other receivables
    
    
    856
    
    
    
    591Future policy benefit reserves
    
    
    27,171
    
    
    
    21,372Other policyholders liabilities
    
    
    1,187
    
    
    
    7,911Federal income tax receivable (payable)
    
    
    2,827
    
    
    
    (2,557
    )Commissions payable and other liabilities
    
    
    58
    
    
    
    95Other, net
    
    
    (583
    )
    
    
    (1,270
    )Net cash provided by operating activities
    
    
    36,284
    
    
    
    34,695Cash flows from investing activities:Purchase of fixed maturities, held-to-maturity
    
    
    (202,286
    )
    
    
    Sale of fixed maturities, available-for-sale
    
    
    72,148
    
    
    
    237Maturity and calls of fixed maturities, available-for-sale
    
    
    276,058
    
    
    
    130,800Purchase of fixed maturities, available-for-sale
    
    
    (174,931
    )
    
    
    (126,514
    )Sale of equity securities, available-for-sale
    
    
    1,184
    
    
    
    Purchase of equity securities, available-for-sale
    
    
    (476
    )
    
    
    (23,984
    )Principal payments on mortgage loans
    
    
    24
    
    
    
    27Mortgage loans funded
    
    
    (170
    )
    
    
    (115
    )Increase in policy loans
    
    
    (2,905
    )
    
    
    (1,944
    )Sale of other long-term investments and property
and equipment
    
    
    406
    
    
    
    178Purchase of other long-term investments and property and
equipment
    
    
    (2,172
    )
    
    
    (868
    )Maturity of short-term investments
    
    
    2,250
    
    
    
    18,000Purchase of short-term investments
    
    
    (2,604
    )
    
    
    (7,923
    )Cash acquired in acquisition
    
    
    9,770
    
    
    
    Net cash used in investing activities
    
    
    (23,704
    )
    
    
    (12,106
    )
    6




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Cash Flows, Continued
Nine Months Ended September 30,
(In thousands)
(Unaudited)
 2009
    
    
    2008Cash flows from financing activities:Warrants exercised
    
    $
    69
    
    
    
    55Series A-1 Preferred Stock capital contribution
    
    
    
    
    
    
    1,125Annuity deposits
    
    
    3,990
    
    
    
    1,862Annuity withdrawals
    
    
    (2,515
    )
    
    
    (1,084
    )Net cash provided by financing activities
    
    
    1,544
    
    
    
    1,958Net increase in cash and cash equivalents
    
    
    14,124
    
    
    
    24,547Cash and cash equivalents at beginning of period
    
    
    63,792
    
    
    
    21,123Cash and cash equivalents at end of period
    
    $
    77,916
    
    
    
    45,670Supplemental disclosures of operating activities:Cash paid during the period for income taxes
    
    $
    1,125
    
    
    
    3,298
 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

September 30, 2009

(Unaudited)
 (1) Financial Statements
        (2) Accounting Pronouncements
 Accounting Standards Recently Adopted
   8




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
       9




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 Accounting Standards Not Yet Adopted
  (3) Segment Information
   10




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 Below is a summary of the segment information for the three and nine month periods ended
September 30, 2009 and 2008.
 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 Federal income tax
    
    $
    2,522
    
    
    
    967
    
    
    
    (421
    )
    
    
    3,068
  11




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(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 Federal income tax
    
    $
    7,938
    
    
    
    3,232
    
    
    
    1,305
    
    
    
    12,475
  12




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 Three Months Ended September 30, 2008Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    24,634
    
    
    
    9,407
    
    
    
    
    
    
    
    34,041Net investment income
    
    
    4,309
    
    
    
    3,072
    
    
    
    162
    
    
    
    7,543Realized losses, net
    
    
    (223
    )
    
    
    (3
    )
    
    
    
    
    
    
    (226
    )Increase in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    (1,483
    )
    
    
    (1,483
    )Other income
    
    
    89
    
    
    
    1
    
    
    
    198
    
    
    
    288Total revenue
    
    
    28,809
    
    
    
    12,477
    
    
    
    (1,123
    )
    
    
    40,163Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    8,644
    
    
    
    5,211
    
    
    
    
    
    
    
    13,855Increase in future policy
benefit reserves
    
    
    8,335
    
    
    
    1,879
    
    
    
    
    
    
    
    10,214Policyholders dividends
    
    
    1,618
    
    
    
    18
    
    
    
    
    
    
    
    1,636Total insurance benefits paid or provided
    
    
    18,597
    
    
    
    7,108
    
    
    
    
    
    
    
    25,705Commissions
    
    
    5,206
    
    
    
    3,613
    
    
    
    
    
    
    
    8,819Other underwriting, acquisition and insurance
expenses
    
    
    2,813
    
    
    
    3,947
    
    
    
    552
    
    
    
    7,312Capitalization of deferred policy acquisition costs
    
    
    (4,526
    )
    
    
    (1,186
    )
    
    
    
    
    
    
    (5,712
    )Amortization of deferred policy acquisition costs
    
    
    3,500
    
    
    
    361
    
    
    
    
    
    
    
    3,861Amortization of cost of customer relationships
acquired and other intangibles
    
    
    209
    
    
    
    467
    
    
    
    
    
    
    
    676Total benefits and expenses
    
    
    25,799
    
    
    
    14,310
    
    
    
    552
    
    
    
    40,661Income (loss) before Federal income tax
    
    $
    3,010
    
    
    
    (1,833
    )
    
    
    (1,675
    )
    
    
    (498
    )
  13




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 Nine Months Ended September 30, 2008Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    72,584
    
    
    
    29,331
    
    
    
    
    
    
    
    101,915Net investment income
    
    
    12,519
    
    
    
    9,255
    
    
    
    713
    
    
    
    22,487Realized gains (losses), net
    
    
    (220
    )
    
    
    (8
    )
    
    
    18
    
    
    
    (210
    )Increase in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    (1,674
    )
    
    
    (1,674
    )Other income
    
    
    245
    
    
    
    12
    
    
    
    595
    
    
    
    852Total revenue
    
    
    85,128
    
    
    
    38,590
    
    
    
    (348
    )
    
    
    123,370Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    26,462
    
    
    
    15,201
    
    
    
    
    
    
    
    41,663Increase in future policy benefit reserves
    
    
    23,430
    
    
    
    1,514
    
    
    
    
    
    
    
    24,944Policyholders dividends
    
    
    4,533
    
    
    
    57
    
    
    
    
    
    
    
    4,590Total insurance benefits paid or provided
    
    
    54,425
    
    
    
    16,772
    
    
    
    
    
    
    
    71,197Commissions
    
    
    15,136
    
    
    
    10,770
    
    
    
    
    
    
    
    25,906Other underwriting, acquisition and insurance
expenses
    
    
    8,020
    
    
    
    10,791
    
    
    
    2,432
    
    
    
    21,243Capitalization of deferred policy acquisition costs
    
    
    (13,017
    )
    
    
    (3,859
    )
    
    
    
    
    
    
    (16,876
    )Amortization of deferred policy acquisition costs
    
    
    10,038
    
    
    
    1,491
    
    
    
    
    
    
    
    11,529Amortization of cost of customer relationships
acquired and other intangibles
    
    
    730
    
    
    
    1,425
    
    
    
    
    
    
    
    2,155Total benefits and expenses
    
    
    75,332
    
    
    
    37,390
    
    
    
    2,432
    
    
    
    115,154Income (loss) before Federal income tax
    
    $
    9,796
    
    
    
    1,200
    
    
    
    (2,780
    )
    
    
    8,216
 (4) Total Comprehensive Income (Loss)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income (loss)
    
    $
    2,248
    
    
    
    (814
    )
    
    
    9,341
    
    
    
    4,913Other comprehensive income (loss) net of
effects of deferred acquisition costs
and taxes:Unrealized gains (losses) on
available-for-sale
securities
    
    
    16,963
    
    
    
    (19,870
    )
    
    
    22,614
    
    
    
    (29,514
    )Tax benefit (expense)
    
    
    (3,678
    )
    
    
    6,954
    
    
    
    (4,233
    )
    
    
    10,330Other comprehensive income (loss)
    
    
    13,285
    
    
    
    (12,916
    )
    
    
    18,381
    
    
    
    (19,184
    )Total comprehensive income (loss)
    
    $
    15,533
    
    
    
    (13,730
    )
    
    
    27,722
    
    
    
    (14,271
    )
  14




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 (5) Earnings Per Share
  Three Months Ended September 30,2009
    
    
    2008(In thousands, except per share amounts)Basic and diluted earnings (loss) per share:Numerator:Net income (loss)
    
    $
    2,248
    
    
    
    (814
    )Less: Preferred stock dividends
    
    
    (13
    )
    
    
    (171
    )Accretion of deferred issuance
costs and
discounts on preferred stock
    
    
    (144
    )
    
    
    (619
    )Net income (loss) available to
common stockholders
    
    $
    2,091
    
    
    
    (1,604
    )Net income (loss) allocated to Class A common stock
    
    $
    2,070
    
    
    
    (1,585
    )Net income (loss) allocated to Class B common stock
    
    
    21
    
    
    
    (19
    )Net income (loss) available to
common stockholders
    
    $
    2,091
    
    
    
    (1,604
    )Denominator:Weighted average shares of
Class A outstanding 
basic and diluted
    
    
    48,441
    
    
    
    43,198Weighted average shares of
Class B outstanding 
basic and diluted
    
    
    1,002
    
    
    
    1,002Total weighted average shares
outstanding 
basic and diluted
    
    
    49,443
    
    
    
    44,200Basic and diluted earnings (loss) per share of Class A common stock
    
    $
    0.04
    
    
    
    (0.04
    )Basic and diluted earnings (loss) per share of Class B common stock
    
    $
    0.02
    
    
    
    (0.02
    )
  15




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 Nine Months Ended September 30,2009
    
    
    2008(In thousands, except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    9,341
    
    
    
    4,913Less: Preferred stock dividends
    
    
    (216
    )
    
    
    (514
    )Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    (2,289
    )
    
    
    (1,287
    )Net income available to common stockholders
    
    $
    6,836
    
    
    
    3,112Net income allocated to Class A common stock
    
    $
    6,764
    
    
    
    3,076Net income allocated to Class B common stock
    
    
    72
    
    
    
    36Net income available to common stockholders
    
    $
    6,836
    
    
    
    3,112Denominator:Weighted average shares of Class A outstanding 
basic and diluted
    
    
    47,177
    
    
    
    43,121Weighted average shares of Class B outstanding 
basic and diluted
    
    
    1,002
    
    
    
    1,002Total weighted average shares outstanding 
basic and diluted
    
    $
    48,179
    
    
    
    44,123Basic earnings per share of Class A common stock
    
    $
    0.14
    
    
    
    0.07Basic earnings per share of Class B common stock
    
    $
    0.07
    
    
    
    0.04Diluted earnings per share of Class A common stock
    
    $
    0.09
    
    
    
    0.07Diluted earnings per share of Class B common stock
    
    $
    0.04
    
    
    
    0.04
  (6) Investments
 Investments are an integral part of the Companys overall insurance operations. We maintain a
conservative investment philosophy with investment purchases primarily in high quality
investment grade securities that provide a secure return to
meet cash flow requirements related to our insurance business. Approximately 93% of our
investment holdings are in fixed maturity and equity securities as of September 30, 2009. The
equity securities were purchased to diversify our overall investment holdings.
  16




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
  September 30, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Available-for-sale securities:U.S. Treasury securities
    
    $
    11,134
    
    
    
    1,913
    
    
    
    
    
    
    
    13,047U.S. Government-sponsored enterprises
    
    
    151,134
    
    
    
    549
    
    
    
    (739
    )
    
    
    150,944Securities issued by states and political
subdivisions
    
    
    50,349
    
    
    
    1,004
    
    
    
    (2,564
    )
    
    
    48,789Securities issued by foreign governments
    
    
    105
    
    
    
    21
    
    
    
    
    
    
    
    126Public utilities
    
    
    24,529
    
    
    
    619
    
    
    
    (324
    )
    
    
    24,824Corporate
    
    
    78,778
    
    
    
    3,640
    
    
    
    (1,377
    )
    
    
    81,041Securities not due at a single maturity date
    
    
    19,788
    
    
    
    776
    
    
    
    (45
    )
    
    
    20,519Total available-for-sale securities
    
    
    335,817
    
    
    
    8,522
    
    
    
    (5,049
    )
    
    
    339,290Held-to-maturity securities:U.S. Government-sponsored enterprises
    
    
    202,197
    
    
    
    505
    
    
    
    (2,206
    )
    
    
    200,496Total fixed maturities
    
    $
    538,014
    
    
    
    9,027
    
    
    
    (7,255
    )
    
    
    539,786Total equity securities
    
    $
    42,414
    
    
    
    10,424
    
    
    
    (56
    )
    
    
    52,894
 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 enterprises
    
    
    280,434
    
    
    
    1,128
    
    
    
    (500
    )
    
    
    281,062Securities issued by states and political subdivisions
    
    
    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
    )
    
    
    485,155Total equity securities
    
    $
    42,908
    
    
    
    92
    
    
    
    
    
    
    
    43,000
  17




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
  September 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. Governmentsponsored
enterprises
    
    $
    68,786
    
    
    
    (711
    )
    
    
    110
    
    
    
    4,192
    
    
    
    (28
    )
    
    
    3
    
    
    
    72,978
    
    
    
    (739
    )
    
    
    113Security issued by states and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,291
    
    
    
    (2,564
    )
    
    
    15
    
    
    
    15,291
    
    
    
    (2,564
    )
    
    
    15Public utilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,815
    
    
    
    (324
    )
    
    
    2
    
    
    
    4,815
    
    
    
    (324
    )
    
    
    2Corporate
    
    
    2,587
    
    
    
    (160
    )
    
    
    8
    
    
    
    14,466
    
    
    
    (1,217
    )
    
    
    9
    
    
    
    17,053
    
    
    
    (1,377
    )
    
    
    17Securities not due at a single
maturity date
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,413
    
    
    
    (45
    )
    
    
    10
    
    
    
    1,413
    
    
    
    (45
    )
    
    
    10Total available-for-sale
    
    
    71,373
    
    
    
    (871
    )
    
    
    118
    
    
    
    40,177
    
    
    
    (4,178
    )
    
    
    39
    
    
    
    111,550
    
    
    
    (5,049
    )
    
    
    157Held-to-maturity securities:U.S. Governmentsponsored
enterprises
    
    
    134,692
    
    
    
    (2,206
    )
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,692
    
    
    
    (2,206
    )
    
    
    53Total fixed maturities
    
    $
    206,065
    
    
    
    (3,077
    )
    
    
    171
    
    
    
    40,177
    
    
    
    (4,178
    )
    
    
    39
    
    
    
    246,242
    
    
    
    (7,255
    )
    
    
    210
 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 enterprises
    
    $
    18,680
    
    
    
    (265
    )
    
    
    14
    
    
    
    11,256
    
    
    
    (235
    )
    
    
    11
    
    
    
    29,936
    
    
    
    (500
    )
    
    
    25Security issued by states and political subdivisions
    
    
    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
   18




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
  September 30, 2009Amortized
    
    
    FairCost
    
    
    Value(In thousands)Available-for-sale securities:Due in one year or less
    
    $
    7,199
    
    
    
    7,398Due after one year through five years
    
    
    42,272
    
    
    
    42,673Due after five years through ten years
    
    
    25,724
    
    
    
    26,370Due after ten years
    
    
    240,834
    
    
    
    242,330Total available-for-sale securities
    
    
    316,029
    
    
    
    318,771Held-to-maturity securities:Due after ten years
    
    
    202,197
    
    
    
    200,496Securities not due at a single maturity date
    
    
    19,788
    
    
    
    20,519Total fixed maturities
    
    $
    538,014
    
    
    
    539,786
   Nine Months EndedSeptember 30,2009
    
    
    2008(In thousands)Proceeds
    
    $
    72,148
    
    
    
    Gross realized gains
    
    $
    2,720
    
    
    
    Gross realized losses
    
    $
    
    
    
    
    
  Nine Months EndedSeptember 30,2009
    
    
    2008(In thousands)Proceeds
    
    $
    1,184
    
    
    
    Gross realized gains
    
    $
    219
    
    
    
    Gross realized losses
    
    $
    
    
    
    
    
  19




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 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.
     September 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(In thousands)Financial Assets:Fixed maturities available-for-sale
and short-term investments
    
    $
    341,846
    
    
    
    13,047
    
    
    
    328,200
    
    
    
    599Equity securities available-for-sale
    
    
    52,894
    
    
    
    52,894
    
    
    
    
    
    
    
    Total financial assets at fair value
    
    $
    394,740
    
    
    
    65,941
    
    
    
    328,200
    
    
    
    599Financial Liabilities:Warrants outstanding
    
    $
    1,892
    
    
    
    
    
    
    
    1,892
    
    
    
    
  20




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
  September 30, 2009(In thousands)Beginning balance at December 31, 2008
    
    $
    654Total realized and unrealized losses:Included in net income
    
    
    Included in other comprehensive income
    
    
    (16
    )Principal paydowns
    
    
    (39
    )Transfer in and (out) of Level 3
    
    
    Ending balance at September 30, 2009
    
    $
    599
   Valuation Related to Fair Value
 Fixed maturity securities, available-for-sale
  Equity securities, available-for-sale
 Cash and cash equivalents and Short-term investment
 Warrants outstanding.
  21




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 Financial Instruments not Carried at Fair Value
  September 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In thousands)Financial assets:Fixed maturities,
held-to-maturity
    
    $
    202,197
    
    
    
    200,496
    
    
    
    
    
    
    
    Mortgage loans
    
    
    1,462
    
    
    
    1,400
    
    
    
    339
    
    
    
    370Policy loans
    
    
    31,860
    
    
    
    31,860
    
    
    
    28,955
    
    
    
    28,955Cash and cash equivalents
    
    
    77,916
    
    
    
    77,916
    
    
    
    63,792
    
    
    
    63,792Financial liabilities:Annuities
    
    
    36,585
    
    
    
    32,877
    
    
    
    34,025
    
    
    
    29,107
       22




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 (8) Legal Proceedings
 Citizens Insurance Company of America, Citizens, Inc., and Harold E.
Riley v. Fernando Hakim Daccach
 The State of
Louisiana v. AAA Insurance Road Home Litigation Road Home Litigation
  
    
    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.
   23




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)
 (9) Convertible Preferred Stock
   (10) Reinsurance
   (11) Income Taxes
  (12) Subsequent Events
     24




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 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, 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 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;
    
    Our success at managing risks involved in the foregoing; and
    
    The risk factors disclosed herein, as well as other risk factors disclosed previously
and from time to time in our filings with the Securities and Exchange Commission.
 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 .
  25




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 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 and lower income
households in Louisiana and Arkansas through employee and independent agents in our home
service distribution channel.
  Life Insurance.
  Home Service Insurance.
  Marketplace Conditions and Trends
  
    
    The global recession has had an adverse impact on our insurance policy sales. We
anticipate new insurance policy sales will be at lower levels 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.
  26




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 
    
    We are exposed to a variety of risks, including the current market conditions as well
as the credit crisis, the 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.
 Recent Acquisition
  Consolidated Results of Operations
  Net Income (Loss)Three Months Ended
    
    Net Income (Loss)
    
    
    Basic Earnings (Loss)
    
    
    Increase (Decrease)September 30,
    
    (in thousands)
    
    
    per Class A Share
    
    
    from Previous Year2009
    
    $
    2,248
    
    
    $
    0.04
    
    
    
    376.2
    %2008
    
    
    (814
    )
    
    
    (0.04
    )
    
    
    (117.5
    )
 Net IncomeNine Months Ended
    
    Net Income
    
    
    Basic Earnings
    
    
    Increase (Decrease)September 30,
    
    (in thousands)
    
    
    per Class A Share
    
    
    from Previous Year2009
    
    $
    9,341
    
    
    $
    0.14
    
    
    
    90.1
    %2008
    
    
    4,913
    
    
    
    0.07
    
    
    
    (53.8
    )
  27




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 Revenues
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Revenues:Premiums:Life insurance
    
    $
    34,589
    
    
    
    32,837
    
    
    
    101,858
    
    
    
    97,178Accident and health insurance
    
    
    371
    
    
    
    384
    
    
    
    1,135
    
    
    
    1,178Property insurance
    
    
    1,192
    
    
    
    820
    
    
    
    3,501
    
    
    
    3,559Net investment income
    
    
    7,413
    
    
    
    7,543
    
    
    
    21,733
    
    
    
    22,487Realized gains (losses), net
    
    
    1,006
    
    
    
    (226
    )
    
    
    2,827
    
    
    
    (210
    )Decrease (increase) in fair value of warrants
    
    
    
    
    
    
    (1,483
    )
    
    
    3,081
    
    
    
    (1,674
    )Other income
    
    
    273
    
    
    
    288
    
    
    
    796
    
    
    
    852Total revenues
    
    
    44,844
    
    
    
    40,163
    
    
    
    134,931
    
    
    
    123,370Exclude increase (decrease) in fair value
of warrants
    
    
    
    
    
    
    1,483
    
    
    
    (3,081
    )
    
    
    1,674Total revenues excluding fair value adjustments
of warrants outstanding
    
    $
    44,844
    
    
    
    41,646
    
    
    
    131,850
    
    
    
    125,044
 Premium Income
 Net Investment Income
  28




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Gross investment income:Fixed maturity securities
    
    $
    6,461
    
    
    
    6,706
    
    
    
    18,591
    
    
    
    19,733Equity securities
    
    
    254
    
    
    
    187
    
    
    
    803
    
    
    
    485Mortgage loans
    
    
    5
    
    
    
    8
    
    
    
    18
    
    
    
    20Policy loans
    
    
    628
    
    
    
    526
    
    
    
    1,813
    
    
    
    1,520Real estate investments
    
    
    357
    
    
    
    213
    
    
    
    1,071
    
    
    
    643Other investment income
    
    
    120
    
    
    
    220
    
    
    
    641
    
    
    
    949Total investment income
    
    
    7,825
    
    
    
    7,860
    
    
    
    22,937
    
    
    
    23,350Less investment expenses
    
    
    412
    
    
    
    317
    
    
    
    1,204
    
    
    
    863Net investment income
    
    $
    7,413
    
    
    
    7,543
    
    
    
    21,733
    
    
    
    22,487
 Realized Gains, Net
 Change in Fair Value of Warrants
  29




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 Benefits and Expenses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    $
    14,494
    
    
    
    13,855
    
    
    
    44,254
    
    
    
    41,663Increase in future policy benefit reserves
    
    
    10,305
    
    
    
    10,214
    
    
    
    28,021
    
    
    
    24,944Policyholders dividends
    
    
    1,827
    
    
    
    1,636
    
    
    
    4,742
    
    
    
    4,590Total insurance benefits paid or provided
    
    
    26,626
    
    
    
    25,705
    
    
    
    77,017
    
    
    
    71,197Commissions
    
    
    8,435
    
    
    
    8,819
    
    
    
    25,462
    
    
    
    25,906Other underwriting, acquisition and
insurance expense
    
    
    6,772
    
    
    
    7,312
    
    
    
    21,889
    
    
    
    21,243Capitalization of deferred policy acquisition costs
    
    
    (5,306
    )
    
    
    (5,712
    )
    
    
    (16,257
    )
    
    
    (16,876
    )Amortization of deferred policy acquisition costs
    
    
    4,303
    
    
    
    3,861
    
    
    
    11,715
    
    
    
    11,529Amortization of cost of customer relationships
acquired and other intangibles
    
    
    946
    
    
    
    676
    
    
    
    2,630
    
    
    
    2,155Total benefits and expenses
    
    $
    41,776
    
    
    
    40,661
    
    
    
    122,456
    
    
    
    115,154
 Claims and Surrenders
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Death claims
    
    $
    5,454
    
    
    
    5,156
    
    
    
    17,236
    
    
    
    17,058Surrender benefits
    
    
    4,530
    
    
    
    3,591
    
    
    
    14,158
    
    
    
    10,768Endowments
    
    
    3,455
    
    
    
    3,415
    
    
    
    10,049
    
    
    
    10,209Property claims
    
    
    514
    
    
    
    1,178
    
    
    
    1,264
    
    
    
    2,226Accident and health benefits
    
    
    113
    
    
    
    96
    
    
    
    323
    
    
    
    256Other policy benefits
    
    
    428
    
    
    
    419
    
    
    
    1,224
    
    
    
    1,146Total claims and surrenders
    
    $
    14,494
    
    
    
    13,855
    
    
    
    44,254
    
    
    
    41,663
     30




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 Increase in Reserves
 Policyholders Dividends
 Commissions
 Other Underwriting, Acquisition and Insurance Expense
 Federal Income Tax
 Segment Operations
  OtherHome
    
    
    Non-Life
    
    
    Service
    
    
    InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Total(In thousands)Income (loss)
before Federal
income tax:Three months ended:September 30, 2009
    
    $
    2,522
    
    
    
    967
    
    
    
    (421
    )
    
    
    3,068September 30, 2008
    
    
    3,010
    
    
    
    (1,833
    )
    
    
    (1,675
    )
    
    
    (498
    )Nine months ended:September 30, 2009
    
    
    7,938
    
    
    
    3,232
    
    
    
    1,305
    
    
    
    12,475September 30, 2008
    
    
    9,796
    
    
    
    1,200
    
    
    
    (2,780
    )
    
    
    8,216
  31




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 Life Insurance
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Revenue:Premiums
    
    $
    25,795
    
    
    
    24,634
    
    
    
    75,570
    
    
    
    72,584Net investment income
    
    
    4,232
    
    
    
    4,309
    
    
    
    12,196
    
    
    
    12,519Realized gains (losses), net
    
    
    650
    
    
    
    (223
    )
    
    
    1,068
    
    
    
    (220
    )Other income
    
    
    108
    
    
    
    89
    
    
    
    267
    
    
    
    245Total revenue
    
    
    30,785
    
    
    
    28,809
    
    
    
    89,101
    
    
    
    85,128Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    10,035
    
    
    
    8,644
    
    
    
    30,259
    
    
    
    26,462Increase in future policy benefit reserves
    
    
    8,850
    
    
    
    8,335
    
    
    
    24,258
    
    
    
    23,430Policyholders dividends
    
    
    1,809
    
    
    
    1,618
    
    
    
    4,687
    
    
    
    4,533Total insurance benefits paid or provided
    
    
    20,694
    
    
    
    18,597
    
    
    
    59,204
    
    
    
    54,425Commissions
    
    
    4,827
    
    
    
    5,206
    
    
    
    14,531
    
    
    
    15,136Other underwriting, acquisition and insurance
expenses
    
    
    2,563
    
    
    
    2,813
    
    
    
    7,873
    
    
    
    8,020Capitalization of deferred policy acquisition costs
    
    
    (3,975
    )
    
    
    (4,526
    )
    
    
    (12,227
    )
    
    
    (13,017
    )Amortization of deferred policy acquisition costs
    
    
    3,757
    
    
    
    3,500
    
    
    
    10,677
    
    
    
    10,038Amortization of cost of customer relationships
acquired and other intangibles
    
    
    397
    
    
    
    209
    
    
    
    1,105
    
    
    
    730Total benefits and expenses
    
    
    28,263
    
    
    
    25,799
    
    
    
    81,163
    
    
    
    75,332Income before Federal income tax
    
    $
    2,522
    
    
    
    3,010
    
    
    
    7,938
    
    
    
    9,796
 Premiums
 Net Investment Income
 Realized Gains (Losses), Net
 Claims and Surrenders
  32




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 Commissions
 Home Service Insurance
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Revenue:Premiums
    
    $
    10,357
    
    
    
    9,407
    
    
    
    30,924
    
    
    
    29,331Net investment income
    
    
    3,126
    
    
    
    3,072
    
    
    
    9,396
    
    
    
    9,255Realized gains (losses), net
    
    
    356
    
    
    
    (3
    )
    
    
    1,682
    
    
    
    (8
    )Other income
    
    
    20
    
    
    
    1
    
    
    
    84
    
    
    
    12Total revenue
    
    
    13,859
    
    
    
    12,477
    
    
    
    42,086
    
    
    
    38,590Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    4,459
    
    
    
    5,211
    
    
    
    13,995
    
    
    
    15,201Increase in future policy benefit reserves
    
    
    1,455
    
    
    
    1,879
    
    
    
    3,763
    
    
    
    1,514Policyholders dividends
    
    
    18
    
    
    
    18
    
    
    
    55
    
    
    
    57Total insurance benefits paid or provided
    
    
    5,932
    
    
    
    7,108
    
    
    
    17,813
    
    
    
    16,772Commissions
    
    
    3,608
    
    
    
    3,613
    
    
    
    10,931
    
    
    
    10,770Other underwriting, acquisition and insurance
expenses
    
    
    3,588
    
    
    
    3,947
    
    
    
    11,577
    
    
    
    10,791Capitalization of deferred policy acquisition costs
    
    
    (1,331
    )
    
    
    (1,186
    )
    
    
    (4,030
    )
    
    
    (3,859
    )Amortization of deferred policy acquisition costs
    
    
    546
    
    
    
    361
    
    
    
    1,038
    
    
    
    1,491Amortization of cost of customer relationships
acquired and other intangibles
    
    
    549
    
    
    
    467
    
    
    
    1,525
    
    
    
    1,425Total benefits and expenses
    
    
    12,892
    
    
    
    14,310
    
    
    
    38,854
    
    
    
    37,390Income (loss) before Federal income tax
    
    $
    967
    
    
    
    (1,833
    )
    
    
    3,232
    
    
    
    1,200
 Premiums
 Net Investment Income
 Realized Gains (Losses), Net
  33




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 Claims and Surrenders
 Increase in Future Policy Benefit Reserves
 Commissions
 Other Underwriting, Acquisition and Insurance Expenses
 Other Non-Insurance Enterprises
  Investments
   34




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
  September 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)
    
    $
    366,188
    
    
    
    51.0
    %
    
    $
    295,481
    
    
    
    46.6
    %Corporate
    
    
    81,041
    
    
    
    11.3
    
    
    
    75,375
    
    
    
    11.8Municipal bonds
    
    
    48,789
    
    
    
    6.8
    
    
    
    58,105
    
    
    
    9.2Mortgage-backed (2)
    
    
    20,519
    
    
    
    2.9
    
    
    
    51,907
    
    
    
    8.2Public utilities
    
    
    24,824
    
    
    
    3.5
    
    
    
    4,153
    
    
    
    0.7Foreign governments
    
    
    126
    
    
    
    
    
    
    
    134
    
    
    
    Total fixed maturity securities
    
    
    541,487
    
    
    
    75.5
    
    
    
    485,155
    
    
    
    76.5Cash and cash equivalents
    
    
    77,916
    
    
    
    10.9
    
    
    
    63,792
    
    
    
    10.1Short-term investments
    
    
    2,556
    
    
    
    0.3
    
    
    
    2,250
    
    
    
    0.4Other investments:Policy loans
    
    
    31,860
    
    
    
    4.4
    
    
    
    28,955
    
    
    
    4.6Equity securities
    
    
    52,894
    
    
    
    7.4
    
    
    
    43,000
    
    
    
    6.8Mortgage loans
    
    
    1,462
    
    
    
    0.2
    
    
    
    339
    
    
    
    0.1Real estate and other long-term investments
    
    
    9,259
    
    
    
    1.3
    
    
    
    9,553
    
    
    
    1.5Total cash, cash equivalents and investments
    
    $
    717,434
    
    
    
    100.0
    %
    
    $
    633,044
    
    
    
    100.0
    %
 (1)
    
    Includes U.S. Treasury securities of $13,047,000 and $14,419,000 and
U.S. Government agencies and U.S. Government-sponsored corporations of
$353,141,000 and $281,062,000 at September 30, 2009 and December 31,
2008, respectively.(2)
    
    Includes $17,057,000 and $46,371,000 of U.S. Government agencies and
U.S. Government-sponsored corporations at September 30, 2009 and
December 31, 2008, respectively.    35




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
  September 30, 2009
    
    
    December 31, 2008Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    %
    
    
    Value
    
    
    %(In thousands)
    
    
    
    
    
    (In thousands)AAA and U.S. Government
    
    $
    404,875
    
    
    
    74.8
    %
    
    $
    379,547
    
    
    
    78.2
    %AA
    
    
    22,470
    
    
    
    4.1
    
    
    
    37,263
    
    
    
    7.7A
    
    
    70,060
    
    
    
    13.0
    
    
    
    56,043
    
    
    
    11.6BBB
    
    
    38,657
    
    
    
    7.1
    
    
    
    7,217
    
    
    
    1.5BB and other
    
    
    5,425
    
    
    
    1.0
    
    
    
    5,085
    
    
    
    1.0Totals
    
    $
    541,487
    
    
    
    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.
  Liquidity and Capital Resources
    36




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
          37




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 Contractual obligations and off-balance sheet arrangements
  Parent Company Liquidity and Capital Resources
  Critical Accounting Policies
  Policy Liabilities
   Deferred Policy Acquisition Costs
    38




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
   Cost of Customer Relationships Acquired
   Goodwill
     39




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
    Valuation of Investments in Fixed Maturity and Equity Securities
      40




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 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
     41




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
   September 30, 2009
    
    
    December 31, 2008Net
    
    
    
    
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedAmortized
    
    
    Fair
    
    
    Gains
    
    
    Amortized
    
    
    Fair
    
    
    GainsCost
    
    
    Value
    
    
    (Losses)
    
    
    Cost
    
    
    Value
    
    
    (Losses)(In thousands)Fixed maturities,
available-for-sale
    
    $
    335,817
    
    
    
    339,290
    
    
    
    3,473
    
    
    
    494,034
    
    
    
    485,155
    
    
    
    (8,879
    )Fixed maturities, held-to-maturity
    
    
    202,197
    
    
    
    200,496
    
    
    
    (1,701
    )
    
    
    
    
    
    
    
    
    
    
    Total fixed maturities
    
    $
    538,014
    
    
    
    539,786
    
    
    
    1,772
    
    
    
    494,034
    
    
    
    485,155
    
    
    
    (8,879
    )Total equity securities
    
    $
    42,414
    
    
    
    52,894
    
    
    
    10,480
    
    
    
    42,908
    
    
    
    43,000
    
    
    
    92
  Market Risk Related to Equity Prices
  
 Item 4.
    
    CONTROLS AND PROCEDURES
     42




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
 Citizens Insurance Company of America, Citizens, Inc., and Harold E.
Riley v. Fernando Hakim Daccach
 The State of
Louisiana v. AAA Insurance Road Home Litigation Road Home Litigation
  
    
    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, 2009
 
 Item 1A.
    
    Risk Factors
  We are subject to extensive governmental regulation in the United States, which increases our costs
of doing business and could restrict the conduct of our business.
    Unexpected losses in future reporting periods may require us to adjust the valuation allowance
against our deferred tax assets.
   
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
   44




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 
 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)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)
  45




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009
 Exhibit Number
    
    The following exhibits are filed herewith: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)*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 (m)31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*32.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*32.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*
 
 *
    
    Filed herewith.(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.(m)
    
    Filed on August 7, 2009 with the Registrants Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 2009, as Exhibit 21, incorporated herein by reference.  46




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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   47