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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 March 31, 2007
 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: 1-13004
 CITIZENS, INC.
 
  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)
  
   
   þ o
  o þ o
  o þ




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 INDEX
 PageNumberPart I. Financial InformationItem 1.
    
    Financial StatementsConsolidated Statements of Financial Position, March 31, 2007, (Unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Operations, Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows, Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    31Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    33Item 1A
    
    Risk Factors
    
    
    35Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3.
    
    Defaults Upon Senior Securities
    
    
    35Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    35Item 5.
    
    Other Information
    
    
    35Item 6.
    
    Exhibits
    
    
    35Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 (In thousands)
 (Unaudited)March 31,
    
    
    December 31,2007
    
    
    2006AssetsInvestments:Fixed maturities available-for-sale, at fair value
(cost $495,869 and $497,939 in 2007 and 2006, respectively)
    
    $
    488,540
    
    
    
    488,318Equity securities available-for-sale, at fair value
(cost $10,277 and $279 in 2007 and 2006, respectively)
    
    
    10,458
    
    
    
    312Mortgage loans on real estate
    
    
    446
    
    
    
    456Policy loans
    
    
    24,064
    
    
    
    23,542Real estate and other long-term investments
(less $215 and $206 accumulated depreciation in 2007 and 2006,
respectively)
    
    
    5,062
    
    
    
    2,427Total investments
    
    
    528,570
    
    
    
    515,055Cash and cash equivalents
    
    
    19,979
    
    
    
    24,521Accrued investment income
    
    
    6,113
    
    
    
    7,107Reinsurance recoverable
    
    
    14,549
    
    
    
    16,044Deferred policy acquisition costs
    
    
    89,948
    
    
    
    86,975Other intangible assets
    
    
    1,087
    
    
    
    1,093Cost of customer relationships acquired
    
    
    33,977
    
    
    
    34,812Excess of cost over net assets acquired
    
    
    11,386
    
    
    
    11,386Property and equipment, net
    
    
    7,348
    
    
    
    7,350Due premium, net
(less $1,412 and $1,440 allowance for doubtful
accounts in 2007 and 2006, respectively)
    
    
    5,905
    
    
    
    6,078Prepaid expenses
    
    
    2,054
    
    
    
    Other assets
    
    
    742
    
    
    
    763Total assets
    
    $
    721,658
    
    
    
    711,184
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION, CONTINUED
(In thousands, except share amounts)
 (Unaudited)March 31,
    
    
    December 31,2007
    
    
    2006Liabilities and Stockholders EquityLiabilities:Future policy benefit reserves:Life insurance
    
    $
    479,516
    
    
    
    473,355Annuities
    
    
    21,662
    
    
    
    20,761Accident and health
    
    
    9,349
    
    
    
    10,604Dividend accumulations
    
    
    4,978
    
    
    
    5,027Premium deposits
    
    
    12,306
    
    
    
    11,897Policy claims payable
    
    
    8,971
    
    
    
    9,448Unearned premium
    
    
    2,613
    
    
    
    1,812Other policyholders funds
    
    
    3,713
    
    
    
    3,771Total policy liabilities
    
    
    543,108
    
    
    
    536,675Commissions payable
    
    
    2,076
    
    
    
    2,581Federal income tax payable
    
    
    1,336
    
    
    
    2,031Deferred Federal income tax
    
    
    2,041
    
    
    
    1,498Warrants outstanding
    
    
    2,258
    
    
    
    1,831Funds held in trust and other liabilities
    
    
    14,200
    
    
    
    14,074Total liabilities
    
    
    565,019
    
    
    
    558,690Commitments
and contingencies (Note 9)Cumulative convertible preferred stock  Series A(Series A-1 - $500 stated value per share, 25,000 shares authorized,
issued and outstanding in 2007 and 2006; Series A-2 - $935 stated value
per share, 5,000 shares authorized, 4,014 issued and outstanding in 2007
and 2006)
    
    
    13,217
    
    
    
    12,883Stockholders Equity:Common stock:Class A, no par value, 100,000,000 shares
authorized,
43,448,630 shares
issued in 2007 and
43,425,524 shares
issued in 2006,
including shares in
treasury of 3,135,738
in 2007 and 2006
    
    
    209,731
    
    
    
    210,066Class B, no par value, 2,000,000 shares
authorized,
1,001,714 shares issued
and outstanding in 2007
and 2006
    
    
    3,184
    
    
    
    3,184Retained deficit
    
    
    (53,843
    )
    
    
    (56,282
    )Accumulated other comprehensive loss:Unrealized losses on securities, net of tax
    
    
    (4,639
    )
    
    
    (6,346
    )154,433
    
    
    
    150,622Treasury stock, at cost
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    143,422
    
    
    
    139,611Total liabilities and stockholders equity
    
    $
    721,658
    
    
    
    711,184
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended March 31
 (In thousands, except per share amounts)
 (Unaudited)
 2007
    
    
    2006Revenues:Premiums:Life insurance
    
    $
    30,816
    
    
    
    28,041Accident and health
    
    
    422
    
    
    
    425Property
    
    
    1,179
    
    
    
    661Net investment income
    
    
    7,067
    
    
    
    6,270Realized losses (gains), net
    
    
    (13
    )
    
    
    873Decrease (increase) in fair value of warrants
    
    
    (427
    )
    
    
    190Other income
    
    
    352
    
    
    
    351Total revenues
    
    
    39,396
    
    
    
    36,811Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    14,156
    
    
    
    14,148Increase in future policy benefit reserves
    
    
    6,935
    
    
    
    7,106Policyholders dividends
    
    
    1,230
    
    
    
    1,022Total insurance benefits paid or
provided
    
    
    22,321
    
    
    
    22,276Commissions
    
    
    8,389
    
    
    
    8,797Other underwriting, acquisition and insurance
expenses
    
    
    6,900
    
    
    
    6,975Capitalization of deferred policy acquisition costs
    
    
    (6,124
    )
    
    
    (6,326
    )Amortization of deferred policy acquisition costs
    
    
    3,151
    
    
    
    2,622Amortization of cost of customer relationships
acquired and other intangibles
    
    
    841
    
    
    
    966Total benefits and expenses
    
    
    35,478
    
    
    
    35,310Income before Federal income tax
    
    
    3,918
    
    
    
    1,501Federal income tax expense
    
    
    1,479
    
    
    
    480Net income
    
    $
    2,439
    
    
    
    1,021Net income applicable to common stock
    
    $
    1,936
    
    
    
    515Per Share Amounts:Basic and diluted earnings per share of
common stock
    
    $
    0.05
    
    
    $
    0.01Weighted average shares outstanding  basic and
diluted
    
    
    41,292
    
    
    
    41,168
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended March 31
 (In Thousands)
 (Unaudited)
 2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    2,439
    
    
    
    1,021Adjustments to reconcile net income to net cash
provided by operating activities:Realized gains (losses) on sale of investments
and other assets
    
    
    13
    
    
    
    (873
    )Net deferred policy acquisition costs
    
    
    (2,973
    )
    
    
    (3,704
    )Amortization of cost of customer relationships
acquired and other intangibles
    
    
    841
    
    
    
    966Increase (decrease) in fair value of warrants
    
    
    427
    
    
    
    (190
    )Depreciation
    
    
    199
    
    
    
    280Amortization of premiums and discounts on
fixed maturities
    
    
    269
    
    
    
    407Deferred Federal income tax benefit
    
    
    (220
    )
    
    
    (748
    )Change in:Accrued investment income
    
    
    994
    
    
    
    553Reinsurance recoverable
    
    
    1,495
    
    
    
    2,163Due premium, net
    
    
    (173
    )
    
    
    (4,611
    )Future policy benefit reserves
    
    
    5,626
    
    
    
    10,968Other policy liabilities
    
    
    626
    
    
    
    (466
    )Federal income tax payable
    
    
    (695
    )
    
    
    (8
    )Commissions payable and other liabilities
    
    
    (375
    )
    
    
    (683
    )Other, net
    
    
    (1,657
    )
    
    
    963Net cash provided by operating activities
    
    
    6,836
    
    
    
    6,038Cash flows from investing activities:Sale of fixed maturities, available-for-sale
    
    
    3,344
    
    
    
    12,629Maturity of fixed maturities, available-for-sale
    
    
    24,023
    
    
    
    4,639Purchase of fixed maturities, available-for-sale
    
    
    (25,600
    )
    
    
    (29,145
    )Sale of equity securities, available-for-sale
    
    
    20
    
    
    
    177Purchase of equity securities, available-for-sale
    
    
    (10,016
    )
    
    
    Principal payments on mortgage loans
    
    
    10
    
    
    
    65Sale of other long-term investments and property
and equipment
    
    
    27
    
    
    
    Principal payments on note receivable
    
    
    1
    
    
    
    474Decrease (increase) in policy loans, net
    
    
    (522
    )
    
    
    124Purchase of other long-term investments and property and equipment equipment
    
    
    (2,846
    )
    
    
    (22
    )Net cash used in investing activities
    
    
    (11,559
    )
    
    
    (11,059
    )
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Three Months Ended March 31
(In thousands)
(Unaudited)
 2007
    
    
    2006Cash flows from financing activities:Annuity deposits
    
    $
    610
    
    
    
    710Annuity withdrawals
    
    
    (429
    )
    
    
    (487
    )Net cash provided by financing activities
    
    
    181
    
    
    
    223Net decrease in cash and cash equivalents
    
    
    (4,542
    )
    
    
    (4,798
    )Cash and cash equivalents at beginning of period
    
    
    24,521
    
    
    
    18,311Cash and cash equivalents at end of period
    
    $
    19,979
    
    
    
    13,513Supplemental
disclosures of operating activities:Cash paid during the period for income taxes
    
    $
    2,394
    
    
    
    1,236
 Supplemental
Disclosures of Non-Cash Financing Activities:
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2007
 (Unaudited)
 (1)
    
    Financial StatementsThe interim consolidated financial statements include the accounts and operations of
Citizens, Inc. (Citizens), incorporated in the state of Colorado on November 8, 1977, and
its wholly-owned subsidiaries, CICA Life Insurance Company of America (CICA), Computing
Technology, Inc., Funeral Homes of America, Inc. (FHA), Insurance Investors, Inc. (III),
Citizens National Life Insurance Company (CNLIC), Security Plan Life Insurance Company
(SPLIC), and Security Plan Fire Insurance Company (SPFIC). Citizens and its consolidated
subsidiaries are collectively referred to as the Company, we, or our.The consolidated statement of financial position for March 31, 2007, the consolidated
statements of operations for the three-month period ended March 31, 2007 and 2006, and
the consolidated statements of cash flows for the three-month periods then ended have
been prepared by the Company without audit. Certain adjustments have been made to prior
period financials, to include the prior period and inter-quarter adjustments, as
described in note 17 of the Companys 2006 Form 10-K. In the opinion of management, all
adjustments to present fairly the financial position, results of operations and changes in
cash flows at March 31, 2007, and for comparative periods presented have been made.During the first quarter of 2007, the Company discovered an overstatement of life
reserves, due to the use of an incorrect interest rate going back several years, in the
amount of $1 million. The error was corrected during the quarter, resulting in an
increase to net income of $660,000. The Company also corrected errors that went
undetected at December 31, 2006 in the amount of $823,000, related to the under-accrual
of interest on various policyholder liabilities and under-accrual of
unearned profit liability reserve. The correction of this error caused a
decrease in net income of $543,000. The net effect of the two errors was an increase in
net income of $117,000, which is not considered material.Certain information and footnote disclosures normally included in financial statements
prepared in accordance with United States of America (U.S.) generally accepted accounting
principles (U.S. GAAP) have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
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thereto included in the Companys Annual Report on Form 10-K for the year ended December
31, 2006 filed with the Securities and Exchange Commission. The results of operations
for the period ended March 31, 2007, are not necessarily indicative of the operating
results for the full year.(2)
    
    Accounting PronouncementsIn September 2005, the American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred
Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts
(SOP 05-1). SOP 05-1 provides guidance on accounting by insurance enterprises for
deferred acquisition costs on internal replacements of insurance and investment
contracts other than those specifically described in SFAS No. 97, Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized
Gains and Losses from the Sale of Investments. SOP 05-1 defines an internal replacement
as a modification in product benefits, features, rights, or coverages that occurs by the
exchange of a contract for a new contract, or by amendment, endorsement, or rider to a
contract, or by the election of a feature or coverage within a contract. Under SOP
05-1, modifications that result in a substantially unchanged contract will be accounted
for as a continuation of the replaced contract. A replacement contract that is
substantially changed will be accounted for as an extinguishment of the replaced
contract resulting in a release of unamortized deferred acquisition costs and unearned
inducements associated with the replaced contract. SOP 05-1 was implemented in the
first quarter of 2007 and did not have a material effect from internal replacements.
Later clarification from the AICPA on SOP 05-1 implementation addressed reinstatements
of previously lapsed policies. The unamortized deferred policy acquisition costs (DAC)
of lapsed policies should be written off per the clarification. The Company had
previously restored the DAC on lapsed policies, which were subsequently reinstated. SOP
05-1 is only applied prospectively for reinstatements occurring in quarters beginning
after December 31, 2006. The Company wrote off $237,000 of DAC on reinstated policies
in the first quarter of 2007.On July 13, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes  an interpretation of FASB Statement No.-109(FIN 48), which clarifies
the accounting for uncertainty in income tax positions. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of an income tax position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, and additional disclosures. The effective date of this
implementation guidance is January 1, 2007,
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with the cumulative effect of the change in accounting principles recorded as an
adjustment to opening retained earnings. The implementation of FIN 48 was not material
to the Companys consolidated financial condition, as the Company has no significant
uncertain tax positions.In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No 157, Fair Value Measurements(SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value in GAAP and
requires enhanced disclosures about fair value measurements. However, SFAS 157 does not
require new fair value measurements. The guidance in SFAS 157 will be applied
prospectively with the exception of certain financial and hybrid instruments measured at
initial recognition under SFAS 133 and for block discounts of financial instruments.
Additionally, FASB 157 will increase the disclosures required. The pronouncement is
effective for fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact of SFAS 157 on the Companys financial instruments and its
consolidated financial statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities(SFAS 159). SFAS 159 permits the option to measure
most financial instruments and certain other items at fair value at specified election
dates. The change in value represents the unrealized gains and losses that will be
included in earnings. The fair value option will generally be applied on an
instrument-by-instrument basis and is generally an irrevocable election. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company is evaluating
its assets and liabilities to determine which financial instruments, if any, are
eligible to account for at fair value under SFAS 159 and the related impact on the
Companys consolidated financial statements.(3)
    
    Revolving Line of CreditThe Company has entered into a $75 million line of credit with Regions Bank that
terminates in October 2007. The line of credit provides for a maximum of $5,000,000 for
general corporate purposes not related to the acquisition of insurance companies.
Although the line of credit was increased from an original level of $30 million,
additional borrowing above the $30 million amount will require the prior written approval
of the holders of the Companys preferred stock. No amount was outstanding on this line
at March 31, 2007.
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(4)
    
    Segment InformationThe Company has three reportable segments: Life Insurance, Home Service Insurance, and
Other Non-Insurance Enterprises. The accounting policies of the segments are in
accordance with U.S. GAAP and are the same as those used in the preparation of the
consolidated financial statement. The Company evaluates profit and loss performance
based on U.S. GAAP net income before federal income taxes for its three reportable
segments.The Life Insurance segment, consisting of ordinary whole-life policies, is sold primarily
throughout Central and South America and Taiwan. Traditional ordinary life, credit life
and final expense policies, are also marketed in the Midwest and southern U.S. The life
insurance segment is aggregated from CICA and CNLIC. The Company has no assets, offices
or employees outside of the U.S. and requires that all transactions be in U.S. Dollars
paid in the U.S.The Companys Home Service Insurance segment focuses on writing final expense ordinary
life insurance utilizing the home service marketing distribution method, whereby
approximately 350 employee-agents work on a route system to collect premiums and service
policyholders. The Company also uses the home service method to write small property
policies on Louisiana residents.The measurement of segment profit and loss and segment assets do not include material
transactions between segments. The Company has no reportable differences between
segments and consolidated operations.Prior to the fourth quarter of 2006, the Company operated segments for domestic and
international life insurance. In 2006, the Company determined these segments should be
combined, as the operations have become less diversified, the marketing philosophies are
similar and operations are under common management control. Additionally, internal
analysis and reporting is based on total life insurance operations. The segment amounts
for 2006 have been reclassified to conform with the current presentation.
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The following summary presents the Companys profit (loss) measurement from continuing operations
for each reportable segment, along with certain components of that profit (loss) measurement, for
the periods indicated.
 Three Months Ended March 31,2007
    
    
    2006(In thousands)Profit (Loss) MeasurementIncome (loss) before federal income tax:Life Insurance
    
    $
    1,808
    
    
    
    918Home Service Insurance
    
    
    2,168
    
    
    
    (48
    )Other Non-Insurance Enterprises
    
    
    (58
    )
    
    
    631Total consolidated income
    
    $
    3,918
    
    
    
    1,501Selected Components of Profit (Loss) MeasurementRevenue:Life Insurance
    
    $
    26,527
    
    
    
    23,149Home Service Insurance
    
    
    13,004
    
    
    
    13,158Other Non-Insurance Enterprises
    
    
    (135
    )
    
    
    504Total consolidated revenue
    
    $
    39,396
    
    
    
    36,811Premiums:Life Insurance
    
    $
    22,586
    
    
    
    19,819Home Service Insurance
    
    
    9,831
    
    
    
    9,308Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated premiums
    
    $
    32,417
    
    
    
    29,127Net investment incomeLife Insurance
    
    $
    3,798
    
    
    
    3,314Home Service Insurance
    
    
    3,167
    
    
    
    2,841Other Non-Insurance Enterprises
    
    
    102
    
    
    
    115Total consolidated net investment income
    
    $
    7,067
    
    
    
    6,270Amortization expense:Life Insurance
    
    $
    3,240
    
    
    
    2,909Home Service Insurance
    
    
    752
    
    
    
    679Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated amortizaion expense
    
    $
    3,992
    
    
    
    3,588Realized gains (losses) on sale of
investments and other assets:Life Insurance
    
    $
    (7
    )
    
    
    (135
    )Home Service Insurance
    
    
    6
    
    
    
    1,008Other Non-Insurance Enterprises
    
    
    (12
    )
    
    
    Total consolidated realized gains (losses)
    
    $
    (13
    )
    
    
    873
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March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Assets:Life Insurance
    
    $
    403,397
    
    
    
    395,297Home Service Insurance
    
    
    302,661
    
    
    
    300,368Other Non-Insurance Enterprises
    
    
    15,600
    
    
    
    15,519Total consolidated assets
    
    $
    721,658
    
    
    
    711,184
 (5)
    
    Total Comprehensive Income (Loss)
 Three Months Ended March 31,2007
    
    
    2006(In thousands)Net income
    
    $
    2,439
    
    
    
    1,021Other comprehensive income (loss) net of tax:Unrealized net gains (losses) on investments
in fixed maturities available for sale and
equity securities
    
    
    1,707
    
    
    
    (6,705
    )Total comprehensive income (loss)
    
    $
    4,146
    
    
    
    (5,684
    )
 (6)
    
    Earnings per ShareThe following table sets forth the computation of basic and dilutive earnings per share:
 Three months ended March 31,2007
    
    
    2006(In thousands except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    2,439
    
    
    
    1,021Less: Preferred stock dividend
    
    
    (168
    )
    
    
    (172
    )Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    (335
    )
    
    
    (334
    )Net income to common stockholders
    
    $
    1,936
    
    
    
    515Denominator:Weighted average shares outstanding  basic and
diluted
    
    
    41,292
    
    
    
    41,168Basic and diluted earnings per share of
common stock
    
    $
    0.05
    
    
    
    0.01
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The effects of Series A-1 and A-2 Convertible Preferred Stock and warrants are
anti-dilutive; therefore, diluted income per share is reported the same as basic income
per share. The Series A-1 and A-2 Convertible Preferred Stock is anti-dilutive because
the amount of the dividend and accretion of deferred issuance costs and discounts for
the three months ended March 31, 2007 per Class A common stock share obtainable on
conversion exceeds basic income per share available to common stockholders. The
warrants are anti-dilutive because the exercise price is in excess of the average Class
A common stock market price for the three months ended March 31, 2007.(7)
    
    Federal Income TaxesThe effective tax rate for the first quarter of 2007 was 37.7% versus 32.0% in the first
quarter of 2006. This was a direct result of the increase in fair value of outstanding
warrants not being tax deductible in 2007 and the decrease in fair value in 2006 not
being taxable.The Company implemented FIN 48 during the first quarter of 2007. One provision of FIN 48
requires accruing interest on potential tax deficiencies resulting from unsustainable
tax positions. The Company did not accrue any interest related to uncertain tax
positions during the three months ended March 31, 2007.The Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various U.S. states. Most of the Company and its subsidiaries are not
subject to examination by U.S. tax authorities for years prior to 2003. Several
subsidiaries have open tax years going back as far as 1994, due to net operating loss
carry-forwards. Most state tax authorities cannot examine tax years prior to 2002.(8)
    
    Sale of CNLICClosure on our formal contract for the sale of CNLIC to a third party has been pending
regulatory approval since the fourth quarter of 2005. CNLIC represents approximately
39.1% and 1.3% of our March 31, 2007 accident and health reserves and life reserves,
respectively. As in 2006, CNLICs accident and health business continues to be fully
reinsured by the prospective buyer. As of January 1, 2007, all of CNLICs life business
is fully reinsured by CICA. This inter-company life reinsurance transaction had no
effect on the Companys consolidated financial statements. The future date of closure on
the sale, if any, of CNLIC cannot be estimated.
 14




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##### Table of Contents



(9)
    
    Legal ProceedingsWe have been named as a defendant in one lawsuit pursuing class certification filed in
the United States District Court, Eastern District of Louisiana. The suit was initially
filed on August 28, 2006, and was styled Abadie, et al v. Aegis Security Insurance Co.,
et al. That suit sought payments for claims denied by our property and casualty
insurance subsidiary, Security Plan Fire Insurance Company (SPFIC), and other
declaratory relief relating to Hurricane Katrina. Most property and casualty insurers
in Louisiana were named in that lawsuit. The Abadiesuit was consolidated into an
action styled In Re: Katrina Canal Breaches Consolidated Litigation(Katrina
Consolidated Litigation). On November 27, 2006, the trial court judge, in three of the
cases which comprise the Katrina Consolidated Litigation (not the Abadie case),
concluded that the flood exclusions contained in the policies at issue in those three
cases were ambiguous as to whether the exclusions pertained to flooding resulting from
the negligence of third parties and, therefore, that the policies in those three cases
provide coverage for all flooding resulting from the negligence of third parties. The
trial court judge immediately certified his opinion for appeal, which was accepted by
the U.S. Court of Appeals for the Fifth Circuit. Appeal briefs have already been
submitted by the parties in the specific cases in which the ruling was made. The oral
argument is scheduled for June 6, 2007. The insurers involved in the appeal assert,
among other things, that the flood exclusions at issue should apply. We intend to
vigorously defend the applicable flood exclusion language and defend against any
proposed class certification. On March 27, 2007, the Abadiematter was administratively
closed by the court. Prior to that, a Master Class Action Insurance Complaint was filed
in the Katrina Consolidated Litigation in the United States District Court, Eastern
District of Louisiana on March 15, 2007. The Master Class Action Insurance Complaint
supersedes all previously filed class action complaints. SPFIC is named as a defendant
in the Master Class Action Insurance Complaint. The class allegations in Abadiewere
dismissed on April 18, 2007, as they have been superseded by the Master Class Action
Insurance Complaint. Presently, the Master Class Action Insurance Complaint is stayed
by order of the court. The stay will presumably remain in place until the U.S. Court of
Appeals for the Fifth Circuit rules on the appeal relative to the applicability of the
flood exclusion. In the event of an adverse outcome, particularly with regard to (a)
whether the flooding is covered by the SPFIC policies and (b) whether this litigation is
appropriate for class certification, the potential exposure to SPFIC, while not at this
time quantifiable, could be substantial.We are also a defendant in a lawsuit originally filed on August 6, 1999 in the Texas
District Court, Austin, Texas, now styled Citizens Insurance Company of America,
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##### Table of Contents



Citizens, Inc., Harold E. Riley and Mark A. Oliver, Petitioners v. Fernando Hakim
Daccach, Respondent, in which a class was originally certified by the trial court, and
affirmed by the Court of Appeals for the Third District of Texas. We appealed the grant
of class status to the Texas Supreme Court, and oral arguments occurred on October 21,
2004. On March 2, 2007, the Texas Supreme Court reversed the Court of Appeals
affirmation of the trial courts class certification order, decertified the class and
remanded the case to the trial court for further proceedings consistent with the Texas
Supreme Courts opinion. The suit alleges that certain life insurance policies that we
made available by our primary life insurance subsidiary to non-U.S. residents, when
combined with a policy feature that allows policy dividends to be assigned to two
non-U.S. trusts for the purpose of accumulating ownership of our Class A common stock,
along with allowing the policyholders to make additional contributions to the trusts,
were actually offers and sales of securities that occurred in Texas by unregistered
dealers in violation of the registration provisions of the Texas securities laws. The
remedy sought was rescission and return of the insurance premium payments. We intend to
continue to pursue a vigorous defense in any remaining proceeding. However, we expect
financial exposure to us, if any, would be significantly less then had the purported
class not been decertified.We are a party to other various legal proceedings incidental to our business, which we
do not consider to be material in the event of adverse outcomes to us.
 
 ITEM 2 . MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
 Certain statements contained in this report 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, the italicized statements and the 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
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 or 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
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##### Table of Contents



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 involve risks and uncertainties, which may cause actual results to
differ materially from those in such statements. Factors that could cause actual results to differ
from those discussed in the forward-looking statements include, but are not limited to: (i) the
strength of foreign and U.S. economies in general and the strength of the local economies where our
policyholders reside; (ii) the effects of and changes in trade, monetary and fiscal policies and
laws; (iii) inflation, interest rates, stock market and monetary fluctuations and volatility;
(iv) the timely development of and acceptance of new insurance products and services and perceived
overall value of these products and services by existing and potential customers; (v) changes in
consumer spending, borrowing and saving habits; (vi) a concentration of our insurance business
from persons residing in Latin and South America and the Pacific Rim; (vii) uncertainties in
assimilating acquisitions; (viii) the persistency of existing and future insurance policies sold
by the Company and its subsidiaries; (ix) the dependence of the Company on its executive officers;
(x) the ability to control expenses; (xi) the effect of changes in laws and regulations
(including laws and regulations concerning insurance) with which the Company and its subsidiaries
must comply, (xii) the effect of changes in accounting policies and practices, as may be adopted
by the regulatory agencies as well as the Financial Accounting Standards Board, (xiii) changes in
the Companys organization and compensation plans; (xiv) the costs and effects of litigation and
of unexpected or adverse outcomes in such litigation; (xv) declines in market values of commercial
real estate; and (xvi) the success of the Company at managing the risks involved in the
foregoing.
 Our forward-looking statements speak only as of the date on which such statements are made, and we
undertake no obligation to update any forward-looking statement to reflect events or circumstances
after the date on which any 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 proxies, and, if applicable, amendments to
those reports filed or furnished pursuant to 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 report.
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##### Table of Contents



Overview
  
    
    the issuance of ordinary life insurance in U.S. Dollar-denominated amounts to
foreign nationals with significant net worth; and
    
    offering final expense ordinary life insurance through the home service distribution
channel in Louisiana.
  Life Insurance.
  18




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##### Table of Contents



Home
Service Insurance.
   Marketplace Conditions and Trends
  
    
    As an increasing percentage of the world population reaches retirement age, we
believe we will benefit from increased demand for living products rather than death
products, as aging baby boomers will require cash accumulation to provide expenses to
meet their lifetime needs. Our ordinary life products are designed for our policy
owners to accumulate cash values to provide for living expenses in an insureds later
years, while continuously providing a death benefit.
 19




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##### Table of Contents




    
    Corporate bond defaults and credit downgrades, which have resulted in
other-than-temporary impairments in the value of some securities, have had a material
impact on life insurers in the past few years. We have not incurred significant losses
from bond defaults for many years. The majority of our investment portfolio is held in
debt instruments carrying the full faith and credit of the U.S. Government, or in U.S.
Government-sponsored enterprises. Most of the municipal bonds we own are privately
insured. We intend to manage our investment portfolio conservatively in the future in
these types of debt instruments.
    
    Many of the events and trends affecting the life insurance industry have had an
impact on the life reinsurance industry. These events led to a decline in the
availability of reinsurance. While we currently cede a limited amount of our primary
insurance business to reinsurers, we may find it difficult to obtain reinsurance in the
future, forcing us to seek reinsurers who are more expensive to us. If we cannot
obtain affordable reinsurance coverage, either our net exposures will increase or we
would have to reduce our underwriting commitments.
    
    Because of the trends described above coupled with increasing costs of regulatory
compliance such as the Sarbanes-Oxley Act of 2002, we believe there is a trend towards
consolidation of domestic life insurance companies. We believe this should be a
benefit to our acquisition strategy because there should be more complementary
acquisition candidates available for us to consider. Management continues to seek acquisitions that can add value to our Company, although at this time,
we have no agreements or understandings with respect to any acquisition. Because of the growth in
our asset base and level of capital, management expects to seek opportunities for larger
acquisition transactions (those in the $50 million to $100 million purchase price range).
 Consolidated Results
  Three Months Ended
    
    Net Income
    
    Change from Previous
    
    Net Income per Class
    AMarch 31,
    
    (In thousands)
    
    Years Period
    
    & B Common Shares2007
    
    $
    2,439
    
    
    
    138.9
    %
    
    $
    0.052006
    
    
    1,021
    
    
    
    -13.2
    %
    
    
    0.01
 20




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Premium Income
 Net Investment Income
 Increase in Future Policy Benefit Reserves
 Policyholder Dividends
 21




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Claims and Surrenders
 Quarter Ended March 31,2007
    
    
    2006(In thousands)Death claims
    
    $
    6,006
    
    
    
    5,827Surrender expenses
    
    
    4,169
    
    
    
    3,831Endowments
    
    
    2,903
    
    
    
    2,424Casualty claims
    
    
    523
    
    
    
    1,496Other policy benefits
    
    
    448
    
    
    
    375Accident and health benefits
    
    
    107
    
    
    
    195Total claims and surrenders
    
    $
    14,156
    
    
    
    14,148
     22




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##### Table of Contents



Commissions
 Underwriting, Acquisition and Insurance Expense
 Deferred Policy Acquisition Costs
 Cost of Customer Relationships Acquired
 Federal Income Taxes
 Liquidity and Capital Resources
   23




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24




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Given
the size and location of the tract, management believes the property can be sold at some future
date for a profit.
     25




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##### Table of Contents



Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligation
    
    Total
    
    
    Year
    
    
    1 to 3 Years
    
    
    3 to 5 Years
    
    
    Years(In Thousands)Operating leases
    
    $
    1,146
    
    
    
    339
    
    
    
    626
    
    
    
    181
    
    
    
    Other
    
    
    86
    
    
    
    42
    
    
    
    44
    
    
    
    
    
    
    
    Total operating and other leases
    
    $
    1,232
    
    
    
    381
    
    
    
    670
    
    
    
    181
    
    
    
    Future policy benefit reserves:Life insurance
    
    $
    479,516
    
    
    
    178
    
    
    
    1,001
    
    
    
    9,390
    
    
    
    468,947Annuities
    
    
    21,662
    
    
    
    11,331
    
    
    
    5,079
    
    
    
    2,190
    
    
    
    3,062Accident and health
    
    
    9,349
    
    
    
    9,349
    
    
    
    
    
    
    
    
    
    
    
    Total future policy benefit reserves
    
    $
    510,527
    
    
    
    20,858
    
    
    
    6,080
    
    
    
    11,580
    
    
    
    472,009Policy claims payable:Life insurance
    
    $
    6,206
    
    
    
    6,206
    
    
    
    
    
    
    
    
    
    
    
    Accident and health
    
    
    1,198
    
    
    
    1,198
    
    
    
    
    
    
    
    
    
    
    
    Casualty
    
    
    1,567
    
    
    
    1,567
    
    
    
    
    
    
    
    
    
    
    
    Total policy claims payable
    
    $
    8,971
    
    
    
    8,971
    
    
    
    
    
    
    
    
    
    
    
    Convertible Preferred Stock
    
    $
    16,251
    
    
    
    
    
    
    
    16,251
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    536,981
    
    
    
    30,210
    
    
    
    23,001
    
    
    
    11,761
    
    
    
    472,009
  Parent Company Liquidity and Capital Resources
  26




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Critical Accounting Policies
  Policy Liabilities
   Deferred Policy Acquisition Costs
   27




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28




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Valuation of Investments in Fixed Maturity and Equity Securities
    Premium Revenue and Related Expenses
   29




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 General
  Market Risk Related to Interest Rates
    30




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Change in Interest RatesDecreases in Interest Rates(In thousands) 100 Basis
    
    
    200 Basis
    
    
    300 BasisPoints
    
    
    Points
    
    
    PointsMarch 31, 2007
    
    $
    18,856
    
    
    
    34,326
    
    
    
    52,431December 31, 2006
    
    $
    20,429
    
    
    
    36,129
    
    
    
    55,312
 Increases in Interest Rates  (In thousands)
 100 Basis
    
    
    200 Basis
    
    
    300 BasisPoints
    
    
    Points
    
    
    PointsMarch 31, 2007
    
    $
    (35,357
    )
    
    
    (59,748
    )
    
    
    (92,786
    )December 31, 2006
    
    $
    (32,305
    )
    
    
    (59,302
    )
    
    
    (92,949
    )
   Market Risk Related to Equity Prices
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  31




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Internal Control  Integrated Framework
   
    
    Stockholders equity as of January 1, 2006 was reduced by $3.1 million as a result
of the Companys adoption of SAB 108.
    
    Pre-tax income was reduced by $1.7 million due to an impairment of goodwill (excess
cost over net assets acquired) of approximately $1.0 million and additional
amortization of intangible assets (cost of customer relationships acquired) of
approximately $0.7 million for the year ended December 31, 2006.
 Change in Internal Control over Financial Reporting
  32




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##### Table of Contents




    
    Hired a new Vice President of Accounting, with significant statutory accounting and
U.S. GAAP experience during the fourth quarter of 2006;
    
    Hired a new Chief Actuary with a background in U.S. GAAP financial reporting during
the third quarter of 2006;
    
    Are committed to implementing an automated ledger during 2007; and
    
    Are strengthening the process of workpaper review by senior members of management to
ensure the completeness and accuracy of supporting workpapers and schedules, including
formalized sign-off processes.
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Abadie, et al v. Aegis Security Insurance Co.,
et al Abadie In Re: Katrina Canal Breaches Consolidated Litigation Abadie case)
 33




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##### Table of Contents



Abadie Abadie
 Citizens Insurance Company of America,
Citizens, Inc., Harold E. Riley and Mark A. Oliver, Petitioners v. Fernando Hakim
Daccach, Respondent
 34




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##### Table of Contents



Item 1.A Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 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)
 35




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##### Table of Contents



Exhibit Number
    
    The following exhibits are filed herewith: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)
 36




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##### Table of Contents



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
    
    First Amended and Restated Loan Agreement  Regions Bank, dated December 5, 2005(k)10.9
    
    First Amendment to First Amended and Restated Loan Agreement  Regions Bank, dated December 8, 2006 (l)11
    
    Statement re: Computation of per share earnings (see financial statements)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*
 37




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##### Table of Contents



*
    
    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 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. I, 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 or about March 16, 2006, with the Registrants Annual Report on Form 10-K for the
Year Ended December 31, 2005, as Exhibit 10.10(o), and incorporated herein by reference.(l)
    
    Filed on March 30, 2007, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2006, as Exhibit 10.9, and incorporated herein by reference. 
 38




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##### Table of Contents



SIGNATURES
  CITIZENS, INC.By:
    /s/ Harold E. RileyHarold E. RileyChief Executive Officer and ChairmanBy:
    /s/ Larry E. CarsonLarry E. CarsonVice President, Chief Financial Officer
and Treasurer  39




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##### Table of Contents



EXHIBIT INDEX
 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)
 40




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##### Table of Contents



Exhibit Number
    
    The following exhibits are filed herewith: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)
 41




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##### Table of Contents



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
    
    First Amended and Restated Loan Agreement  Regions Bank, dated December 5, 2005(k)10.9
    
    First Amendment to First Amended and Restated Loan Agreement  Regions Bank, dated December 8, 2006 (l)11
    
    Statement re: Computation of per share earnings (see financial statements)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*
 42




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##### Table of Contents



*
    
    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 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. I, 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 or about March 16, 2006, with the Registrants Annual Report on Form 10-K for the
Year Ended December 31, 2005, as Exhibit 10.10(o), and incorporated herein by reference.(l)
    
    Filed on March 30, 2007, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2006, as Exhibit 10.9, and incorporated herein by reference. 43