##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 Commission File Number: 000-16509
 CITIZENS, INC.
 (Exact name of registrant as specified in its charter)
 Colorado
    
    84-0755371(State of incorporation)
    
    (I.R.S. Employer Identification No.)400 East Anderson Lane, Austin, Texas
    
    78752(Address of principal executive offices)
    
    (Zip Code)
 (512) 837-7100  (Registrants telephone number, including area code
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredClass A Common Stock
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
None  (Title of class)
 o Yes þ No
 o Yes þ No
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ
  
 DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    10Item 1B. Unresolved Staff Comments
    
    
    21Item 2. Properties
    
    
    21Item 3. Legal Proceedings
    
    
    21Item 4. (Reserved)
    
    
    21PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities
    
    
    22Item 6. Selected Financial Data
    
    
    22Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    42Item 8. Financial Statements and Supplementary Data
    
    
    43Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    43Item 9A. Controls and Procedures
    
    
    43Item 9B. Other Information
    
    
    45PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    45Item 11. Executive Compensation
    
    
    45Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    45Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    45Item 14. Principal Accounting Fees and Services
    
    
    45PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    45Signatures
    
    
    96Exhibit 21Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 99.1
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FORWARD-LOOKING STATEMENTS
 Certain statements contained in this Annual Report on Form 10-K are not statements of historical
fact and constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act (the " Act " ), including, without limitation, statements specifically
identified as forward-looking statements within this document. Many of these statements contain
risk factors as well. In addition, certain statements in future filings by the Company with the
Securities and Exchange Commission, in press releases, and in oral and written statements made by
us or with the approval of the Company, which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. Examples of forward-looking statements,
include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per
share, the payment or non-payment of dividends, capital structure, and other financial items, (ii)
statements of our plans and objectives by our management or Board of Directors including those
relating to products or services, (iii) statements of future economic performance and (iv)
statements of assumptions underlying such statements. Words such as " believes,   anticipates,  assumes, estimates, plans, projects, could, " expects,   intends,   targeted,   may, 
" will  and similar expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements.
 Forward-looking statements are subject to known and unknown risks, uncertainties and other factors
that may cause actual results to differ materially from those contemplated by the forward-looking
statements. Factors that could cause the Companys future results to differ materially from
expected results include, but are not limited to:
 
    
    Changes in foreign and U.S. general economic, market, and political conditions, including the
performance of financial markets and interest rates;
 
    
    Changes in consumer behavior, which may affect the Companys ability to sell its products and
retain business;
 
    
    The timely development of and acceptance of new products of the Company and perceived overall
value of these products and services by existing potential customers;
 
    
    Fluctuations in experience regarding current mortality, morbidity, persistency and interest
rates relative to expected amounts used in pricing the Companys products;
 
    
    The performance of our investment portfolio, which may be adversely affected by changes in
interest rates, adverse developments and ratings of issuers whose debt securities we may hold,
and other adverse macroeconomic events;
 
    
    Results of litigation we may be involved in;
 
    
    Changes in assumptions related to deferred acquisition costs and the value of any businesses
we may acquire;
 
    
    Regulatory, accounting or tax changes that may affect the cost of, or the demand for, the
Companys products or services;
 
    
    Our concentration of business from persons residing in Latin America and the Pacific Rim;
 
    
    Our success at managing risks involved in the foregoing;
 
    
    Changes in tax laws;
 
    
    Effects of acquisitions and restructuring, including possible difficulties in integrating
and realizing the projected results of acquisitions; and
 
    
    Changes in statutory or U.S. GAAP accounting principles, policies or practices.
 Such forward-looking statements speak only as of the date on which such statements are made, and
the Company undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made to reflect the occurrence of
unanticipated events.
 We make available, free of charge, through our Internet website (http://www.citizensinc.com), our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16
reports filed by officers and directors, news releases, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after we electronically file such reports with, or furnish
such reports to, the Securities and Exchange Commission. We are not including any of the
information contained on our website as part of, or incorporating it by reference into, this Annual
Report on Form 10-K.
  2




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 PART I
 
 ITEM 1. BUSINESS
 Overview
  
    
    U.S. Dollar-denominated ordinary whole life insurance and endowment 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 concentrated in the
midwest and southern United States through independent marketing consultants; and
 
    
    final expense and limited liability property policies to middle and lower income
households in Louisiana, Arkansas, and Mississippi through employee and independent agents
in our home service distribution channel.
   Our Operating Segments
  
    
    Life Insurance
 
    
    Home Service Insurance
 
    
    Other Non-insurance Enterprises
  Life Insurance
   3




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 International Sales
  
    
    larger face amount policies typically issued when compared to our U.S. operations, which
results in lower underwriting and administrative costs per unit of coverage;
 
    
    premiums are typically paid annually rather than monthly or quarterly, which saves us
administrative expenses, accelerates cash flow and results in lower policy lapse rates than
premiums with more frequently scheduled payments;
 
    
    favorable persistency levels and mortality rates comparable to our U.S. policies.
    Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)CountryColombia
    
    $
    21,622
    
    
    
    20.9
    %
    
    $
    23,755
    
    
    
    23.8
    %
    
    $
    19,473
    
    
    
    20.6
    %Venezuela
    
    
    16,875
    
    
    
    16.3
    
    
    
    14,209
    
    
    
    14.2
    
    
    
    12,594
    
    
    
    13.4Taiwan
    
    
    15,245
    
    
    
    14.7
    
    
    
    14,316
    
    
    
    14.4
    
    
    
    13,793
    
    
    
    14.6Ecuador
    
    
    12,427
    
    
    
    12.0
    
    
    
    10,922
    
    
    
    11.0
    
    
    
    10,889
    
    
    
    11.5Argentina
    
    
    9,232
    
    
    
    8.9
    
    
    
    8,669
    
    
    
    8.7
    
    
    
    9,580
    
    
    
    10.2Other Non-U.S.
    
    
    28,159
    
    
    
    27.2
    
    
    
    27,843
    
    
    
    27.9
    
    
    
    27,988
    
    
    
    29.7Total
    
    $
    103,560
    
    
    
    100.0
    %
    
    $
    99,714
    
    
    
    100.0
    %
    
    $
    94,317
    
    
    
    100.0
    %
   4




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 International Products
  
    
    U.S. Dollar-denominated cash values that accumulate, beginning in the first policy year,
to a policyholder during his or her lifetime;
 
    
    premium rates that are competitive with or better than most foreign local companies;
 
    
    a hedge against local currency inflation;
 
    
    protection against devaluation of foreign currency;
 
    
    capital investment in a more secure economic environment (i.e., the United States); and
 
    
    lifetime income guarantees for an insured or for surviving beneficiaries.
  International Competition
    Domestic Sales
    5




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)StateTexas
    
    $
    6,284
    
    
    
    39.4
    %
    
    $
    6,501
    
    
    
    37.2
    %
    
    $
    7,306
    
    
    
    41.6
    %Indiana
    
    
    1,904
    
    
    
    11.9
    
    
    
    2,125
    
    
    
    12.1
    
    
    
    99
    
    
    
    0.6Missouri
    
    
    1,734
    
    
    
    10.9
    
    
    
    1,877
    
    
    
    10.7
    
    
    
    2,073
    
    
    
    11.8Kentucky
    
    
    1,296
    
    
    
    8.1
    
    
    
    1,525
    
    
    
    8.7
    
    
    
    1,838
    
    
    
    10.5Mississippi
    
    
    1,188
    
    
    
    7.4
    
    
    
    1,308
    
    
    
    7.5
    
    
    
    1,417
    
    
    
    8.1Other States
    
    
    3,559
    
    
    
    22.3
    
    
    
    4,159
    
    
    
    23.8
    
    
    
    4,819
    
    
    
    27.5Total
    
    $
    15,965
    
    
    
    100.0
    %
    
    $
    17,495
    
    
    
    100.0
    %
    
    $
    17,552
    
    
    
    100.0
    %
   Domestic Products
  
    
    cash accumulation/living benefits;
 
    
    tax-deferred interest earnings;
 
    
    guaranteed lifetime income options;
 
    
    monthly income for surviving family members;
 
    
    accidental death benefit coverage options; and
 
    
    an option to waive premium payments in the event of disability.
  Domestic Competition
    6




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Home Service Insurance
   Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)StateLouisiana
    
    $
    39,920
    
    
    
    87.1
    %
    
    $
    38,759
    
    
    
    86.3
    %
    
    $
    37,485
    
    
    
    86.0
    %Arkansas
    
    
    4,395
    
    
    
    9.6
    
    
    
    4,652
    
    
    
    10.4
    
    
    
    4,584
    
    
    
    10.5Mississippi
    
    
    333
    
    
    
    0.7
    
    
    
    330
    
    
    
    0.7
    
    
    
    359
    
    
    
    0.8Other States
    
    
    1,167
    
    
    
    2.5
    
    
    
    1,190
    
    
    
    2.6
    
    
    
    1,180
    
    
    
    2.7Total
    
    $
    45,815
    
    
    
    100.0
    %
    
    $
    44,931
    
    
    
    100.0
    %
    
    $
    43,608
    
    
    
    100.0
    %
 Home Service Products and Competition
   Other Non-Insurance Enterprises
   Operations and Technology
   7




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Regulation
      8




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
         9




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Potential Changes in Regulation
  
 Item 1A.
    
    RISK FACTORS
  Risks Relating to Our Business
 A substantial amount of our revenue comes from foreign residents and is subject to risks associated
with foreign insurance laws, political instability and asset transfer restrictions.
      10




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 The majority of our foreign policyholders choose to invest their policy dividends or other cash
benefits in our Class A common stock through the Citizens, Inc. Stock Investment Plan (the Plan). If a securities regulatory
authority were to deem the Plans operation contrary to applicable securities laws,
we risk facing fines and penalties and cease and desist orders which would create a reduction in
the amount of Class A common stock purchased on the open market through the Plan.
  We face financial and capital market risks in our operations
  Changes in market interest rates may significantly affect our profitability.
    11




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Our investment portfolio is subject to various risks that may result in realized investment losses.
In particular, decreases in the fair value of fixed maturities may significantly reduce the value
of our investments, and as a result, our financial condition may suffer.
   A substantial portion of our investment portfolio is concentrated in U.S. Government sponsored
corporations and agencies.
  Gross unrealized losses on fixed maturity and equity securities may be realized or result in future
impairments, resulting in a reduction in our net income.
  Our actual claims losses may exceed our reserves for claims and we may be required to establish
additional reserves, which in turn may adversely impact our results of operations and financial
condition.
   12




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 We may be required to accelerate the amortization of deferred acquisition costs and the costs of
customer relationships acquired, which would increase our expenses and adversely affect our results
of operations and financial condition.
     We may be required to recognize an impairment on the value of our goodwill, which would increase
our expenses and materially adversely affect our results of operations and financial condition.
  We are a defendant in lawsuits, which may adversely affect our financial condition and detract from
the time our management is able to devote to our business, and we are subject to risks related to
litigation and regulatory matters.
 Delia Bolanos Andrade, et al., Plaintiffs, v.
Citizens Insurance Company of America, et al.
  13




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Reinsurers with which we do business could increase their premium rates and may not honor their
obligations, leaving us liable for the reinsured coverage.
    We may not be able to continue our past strategy of acquiring other U.S. life insurance companies,
and we may not realize improvements to our financial results as a result of our past or any future
acquisitions.
     14




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Our international and domestic operations face significant competition.
  
    
    Foreign operated companies with U.S. Dollar policies. We face direct competition from
companies that operate in the same manner as we operate in our international markets.
 
    
    Companies foreign to the countries in which their policies are sold but that issue local
currency policies. Another group of our competitors in the international marketplace
consists of companies that are foreign to the countries in which their policies are sold
but issue life insurance policies denominated in the local currencies of those countries.
Local currency policies provide the benefit of assets located in the country of foreign
residents, but entail risks of uncertainty due to local currency fluctuations, as well as
the perceived instability and weakness of local currencies.
 
    
    Locally operated companies with local currency policies. We compete with companies
formed and operated in the country in which our foreign insureds reside. Generally, these
companies are subject to risks of currency fluctuations, and they primarily use mortality
tables based on experience of the local population as a whole. These mortality tables are
typically based on significantly shorter life spans than those we use. As a result, the
cost of insurance from these companies tends to be higher than ours. Although these
companies typically market their policies to a broader section of the population than do
our independent marketing firms and independent consultants, there can be no assurance that
these companies will not endeavor to place a greater emphasis on our target market and
compete more directly with us.
    Sales of our products may be reduced if we are unable to (i) establish and maintain commercial
relationships with independent marketing firms and independent consultants (ii) attract and retain
employee agents or (iii) develop and maintain our distribution sources.
   15




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Loss of the services of our senior management team would likely hinder development of our operating
and marketing programs and our strategy for expanding our business.
  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.
     Changes in U.S. regulation may adversely affect our results of operations and financial condition
and limit our prospective growth.
   16




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Our failure to maintain effective information systems could adversely affect our business.
    Our failure to protect confidential information and privacy could result in the loss of customers,
subject us to fines and penalties and adversely affect our results of operations and financial
condition.
    The insurance industry in which we operate may be subject to periodic negative publicity, which may
negatively impact our financial results.
  General economic, financial market and political conditions may materially adversely affect our
results of operations and financial condition.
    17




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Our insurance subsidiaries are restricted by applicable laws and regulations in the amounts of
fees, dividends and other distributions they may make to us. The inability of our subsidiaries to
make payments to us in sufficient amounts for us to conduct our operations could adversely affect
our ability to meet our obligations or expand our business.
    Adverse capital and credit market conditions may significantly affect our access to debt and equity
capital and our cost of capital in seeking to expand our business.
   There can be no assurance that actions of the U.S. Government, the Federal Reserve and other
governmental and regulatory bodies for the purpose of stabilizing the financial markets will
achieve the intended effect.
   18




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Unexpected losses in future reporting periods may require us to adjust the valuation allowance
against our deferred tax assets.
   Risks Relating to Our Class A Common Stock
 The price of our Class A common stock may be impacted by the level of participation in the
Citizens, Inc., Stock Investment Plan (the Plan).
  Control of our Company, through the ownership of our Class B Common Stock, may be held by a
501(c)(3) charitable foundation established by our Founder and we cannot determine whether any
change in our management, operations, or operating strategies will occur as a result of such an
ownership change.
  There are a substantial number of our issued shares of Class A common stock eligible for future
sale in the public market. The sale of these shares could cause the market price of our Class A
common stock to fall.
   19




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 The price of our Class A common stock may be volatile and may be affected by market conditions
beyond our control.
  Our Class A common shareholders do not control us and have a limited ability to influence our
business policies and corporate actions and are not by themselves able to elect any of our
directors.
  Our articles of incorporation and bylaws, as well as applicable state insurance laws, may
discourage takeovers and business combinations that our shareholders might consider to be in their
best interests.
   
    
    holders of shares of our Class B common stock elect a simple majority of our board of
directors, and all of these shares are owned by the Harold E. Riley Trust; and
 
    
    our board of directors may issue one or more series of preferred stock without the
approval of our shareholders.
  We have never paid any cash dividends on our Class A common stock and do not anticipate doing so in
the foreseeable future.
   20




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Item 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 Item 2.
    
    PROPERTIES
  
 Item 3.
    
    LEGAL PROCEEDINGS
 Delia Bolanos Andrade, et al., Plaintiffs, v. Citizens Insurance Company of America, et
al., Defendants
  
    
    disputes over insurance coverage or claims adjudication;
 
    
    regulatory compliance with insurance and securities laws in the United States and in
foreign countries;
 
    
    disputes with our marketing firms, consultants and employee agents over compensation
and termination of contracts and related claims;
 
    
    disputes regarding our tax liabilities;
 
    
    disputes relative to reinsurance and coinsurance agreements; and
 
    
    disputes relating to businesses acquired and operated by us.
  
 Item 4.
    
    (Reserved)
  21




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 PART II
 
 Item 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASE OF EQUITY SECURITIES
 Market Information
   2010
    
    
    2009Quarter Ended
    
    High
    
    
    Low
    
    
    High
    
    
    LowMarch 31
    
    $
    7.27
    
    
    
    5.90
    
    
    $
    9.65
    
    
    
    6.32June 30
    
    
    7.31
    
    
    
    6.43
    
    
    
    7.98
    
    
    
    6.08September 30
    
    
    7.17
    
    
    
    6.55
    
    
    
    7.20
    
    
    
    5.59December 31
    
    
    7.59
    
    
    
    6.84
    
    
    
    6.83
    
    
    
    5.80
 Equity Security Holders
  
    
    Class A Common Stock  90,082
 
    
    Class B Common Stock  1
   Securities Authorized for Issuance Under Equity Compensation Plans
  
 Item 6.
    
    SELECTED FINANCIAL DATA
  Years ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(In thousands, except per share data)Operating itemsInsurance premiums
    
    $
    152,052
    
    
    
    147,280
    
    
    
    141,297
    
    
    
    136,748
    
    
    
    124,626Net investment income
    
    
    30,077
    
    
    
    29,602
    
    
    
    30,478
    
    
    
    30,743
    
    
    
    26,975Realized gains (losses)
    
    
    8,012
    
    
    
    8,040
    
    
    
    (23,812
    )
    
    
    (94
    )
    
    
    1,286Change in fair value of warrants
    
    
    232
    
    
    
    3,154
    
    
    
    (2,662
    )
    
    
    828
    
    
    
    (244
    )Total revenues
    
    
    191,181
    
    
    
    188,980
    
    
    
    146,673
    
    
    
    169,637
    
    
    
    154,189Net income (loss)
    
    
    15,511
    
    
    
    17,340
    
    
    
    (15,707
    )
    
    
    16,557
    
    
    
    8,677Balance sheet dataTotal assets
    
    
    986,506
    
    
    
    927,326
    
    
    
    832,276
    
    
    
    787,909
    
    
    
    711,184Total liabilities
    
    
    758,872
    
    
    
    711,251
    
    
    
    653,022
    
    
    
    597,532
    
    
    
    558,690Total stockholders equity
    
    
    227,634
    
    
    
    216,075
    
    
    
    171,541
    
    
    
    176,157
    
    
    
    139,611Life insurance in force
    
    
    5,115,662
    
    
    
    4,997,043
    
    
    
    4,666,848
    
    
    
    4,538,202
    
    
    
    4,382,530Per share dataBook value per share
    
    
    4.58
    
    
    
    4.35
    
    
    
    3.68
    
    
    
    4.00
    
    
    
    3.38Basic and diluted earnings (loss)
per Class A share
    
    
    0.32
    
    
    
    0.31
    
    
    
    (0.42
    )
    
    
    0.35
    
    
    
    0.16
   22




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Overview
  
    
    whole life insurance;
    
    endowments;
    
    credit insurance;
    
    final expense; and
    
    limited liability property policies.
 Life Insurance
  Home Service Insurance
      23




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  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 pay expenses to meet their lifetime
needs. Our ordinary life products are designed to accumulate cash values to provide for
living expenses in a policy owners later years, while continuously providing a death
benefit.
 
    
    We believe there is a trend toward consolidation of domestic life insurance companies,
due to significant losses incurred by the life insurance industry as a result of the credit
crisis and recent economic pressures, as well as increasing costs of regulatory compliance
for domestic life insurance companies. We believe this trend 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 have 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.
 
    
    While our management has more than 40 years of experience in writing life
insurance policies for foreign residents, changes related to foreign government laws and
regulations and application of them, along with currency controls affecting our foreign
resident insureds could adversely impact our revenues, results of operations and financial
condition.
 Recent Acquisitions
   24




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Results of Operations
  Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Revenues:Premiums:Life insurance
    
    $
    145,665
    
    
    
    141,001
    
    
    
    134,953Accident and health insurance
    
    
    1,577
    
    
    
    1,531
    
    
    
    1,580Property insurance
    
    
    4,810
    
    
    
    4,748
    
    
    
    4,764Net investment income
    
    
    30,077
    
    
    
    29,602
    
    
    
    30,478Realized gains (losses), net
    
    
    8,012
    
    
    
    8,040
    
    
    
    (23,812
    )Decrease (increase) in fair value of warrants
    
    
    232
    
    
    
    3,154
    
    
    
    (2,662
    )Other income
    
    
    808
    
    
    
    904
    
    
    
    1,372Total revenues
    
    
    191,181
    
    
    
    188,980
    
    
    
    146,673Exclude increase (decrease) in fair value
of warrants
    
    
    (232
    )
    
    
    (3,154
    )
    
    
    2,662Total revenues excluding fair value adjustments
of warrants outstanding
    
    $
    190,949
    
    
    
    185,826
    
    
    
    149,335
 Premium Income
 Net Investment Income
  Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands, except for %)Net investment income
    
    $
    30,077
    
    
    
    29,602
    
    
    
    30,478Average invested assets, at amortized cost
    
    $
    696,134
    
    
    
    622,699
    
    
    
    583,286Yield on average invested assets
    
    
    4.32
    %
    
    
    4.75
    %
    
    
    5.23
    %
   25




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Gross investment income:Fixed maturity securities
    
    $
    26,829
    
    
    
    25,921
    
    
    
    27,536Equity securities
    
    
    713
    
    
    
    1,056
    
    
    
    1,027Mortgage loans
    
    
    101
    
    
    
    50
    
    
    
    28Policy loans
    
    
    2,704
    
    
    
    2,444
    
    
    
    2,105Long-term investments
    
    
    246
    
    
    
    465
    
    
    
    39Other
    
    
    207
    
    
    
    507
    
    
    
    357Total investment income
    
    
    30,800
    
    
    
    30,443
    
    
    
    31,092Less investment expenses
    
    
    (723
    )
    
    
    (841
    )
    
    
    (614
    )Net investment income
    
    $
    30,077
    
    
    
    29,602
    
    
    
    30,478
  Realized Gains (Losses) on Investments
   26




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Realized gains (losses):Sales, calls and maturities:Fixed maturities
    
    $
    753
    
    
    
    2,705
    
    
    
    (2
    )Equity securities
    
    
    7,343
    
    
    
    5,292
    
    
    
    Property and equipment
    
    
    (8
    )
    
    
    323
    
    
    
    (4
    )Other long-term investments
    
    
    (49
    )
    
    
    16
    
    
    
    18Net realized gains (losses)
    
    
    8,039
    
    
    
    8,336
    
    
    
    12Other-than-temporary impairments:Fixed maturities
    
    
    (27
    )
    
    
    (103
    )
    
    
    (288
    )Equity securities
    
    
    
    
    
    
    (193
    )
    
    
    (23,536
    )Realized loss on OTTI
    
    
    (27
    )
    
    
    (296
    )
    
    
    (23,824
    )Net realized gains (losses)
    
    $
    8,012
    
    
    
    8,040
    
    
    
    (23,812
    )
 Decrease (Increase) in Fair Value of Warrants
  Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    $
    61,038
    
    
    
    59,988
    
    
    
    56,253Increase in future policy benefit reserves
    
    
    46,420
    
    
    
    40,790
    
    
    
    37,117Policyholders dividends
    
    
    7,485
    
    
    
    6,680
    
    
    
    6,865Total insurance benefits paid or provided
    
    
    114,943
    
    
    
    107,458
    
    
    
    100,235Commissions
    
    
    36,585
    
    
    
    35,536
    
    
    
    35,984Other underwriting, acquisition and
insurance expense
    
    
    27,057
    
    
    
    28,340
    
    
    
    28,611Capitalization of deferred policy acquisition costs
    
    
    (27,960
    )
    
    
    (27,132
    )
    
    
    (29,234
    )Amortization of deferred policy acquisition costs
    
    
    17,840
    
    
    
    20,678
    
    
    
    20,775Amortization of cost of customer relationships
acquired and other intangibles
    
    
    3,086
    
    
    
    3,494
    
    
    
    2,897Total benefits and expenses
    
    $
    171,551
    
    
    
    168,374
    
    
    
    159,268
  27




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Claims and Surrenders
 Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Death claims
    
    $
    22,670
    
    
    
    22,494
    
    
    
    22,529Surrender expenses
    
    
    19,727
    
    
    
    19,666
    
    
    
    15,222Endowment benefits
    
    
    14,499
    
    
    
    14,079
    
    
    
    13,814Property claims
    
    
    1,578
    
    
    
    1,590
    
    
    
    2,657Accident and health benefits
    
    
    608
    
    
    
    437
    
    
    
    427Other policy benefits
    
    
    1,956
    
    
    
    1,722
    
    
    
    1,604Total claims and surrenders
    
    $
    61,038
    
    
    
    59,988
    
    
    
    56,253
 
    
    The Company monitors death claims based upon expectations. The claims experience has
remained relatively consistent over the last three years. These values may routinely
fluctuate from year to year.
 
    
    Policy surrenders increased in 2010 and 2009 compared to 2008, but remained at a level
that represents approximately 0.4% of direct insurance inforce. The increase in surrender
expense is primarily related to our international business and is expected to increase over
time due to the aging of this block of business. A significant portion of surrenders
relates to policies that have been in force over fifteen years and no longer have a
surrender charge associated with them. Total direct insurance inforce reported in 2010 was
$4.5 billion, and in 2009 was $4.4 billion compared to $4.3 billion in 2008.
 
    
    Endowment benefits increased in each of the last three years. We have a series of
international policies that carry an immediate endowment benefit of an amount elected by
the policy owner. These benefits have been popular in the Pacific Rim and Latin America,
where the Company has experienced increased interest in our guaranteed products in recent
years. Like policy dividends, endowments are factored into the premium and, as such, the
increase has no impact on profitability. The Company expects these benefits to continue to
increase as this block of business increases.
 
    
    Property claims remained consistent in 2010 with the amount reported for 2009. In 2008,
Hurricanes Gustav and Ike swept through Louisiana resulting in an increase in property
claims of $800,000.
 Reserves
 Policyholder Dividends
 Commissions
 Underwriting, Acquisition and Insurance Expense
 Deferred Policy Acquisition Costs
  28




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Cost of Customer Relationships Acquired and Other Intangibles
 Federal Income Tax
 Segment Operations
  Home

    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Total(In thousands)Income (loss) before Federal income tax :For the year ended December 31:2010
    
    $
    13,909
    
    
    
    6,723
    
    
    
    (1,002
    )
    
    
    19,6302009
    
    
    10,472
    
    
    
    9,245
    
    
    
    889
    
    
    
    20,6062008
    
    
    712
    
    
    
    (8,955
    )
    
    
    (4,352
    )
    
    
    (12,595
    )
  29




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Life Insurance
  For the Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Revenue:Premiums
    
    $
    109,985
    
    
    
    105,997
    
    
    
    102,030Net investment income
    
    
    16,523
    
    
    
    16,667
    
    
    
    17,015Realized gains (losses), net
    
    
    6,590
    
    
    
    1,100
    
    
    
    (13,882
    )Other income
    
    
    650
    
    
    
    340
    
    
    
    330Total revenue
    
    
    133,748
    
    
    
    124,104
    
    
    
    105,493Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    41,040
    
    
    
    41,277
    
    
    
    36,241Increase in future policy benefit reserves
    
    
    42,619
    
    
    
    36,043
    
    
    
    34,246Policyholders dividends
    
    
    7,414
    
    
    
    6,594
    
    
    
    6,714Total insurance benefits paid or provided
    
    
    91,073
    
    
    
    83,914
    
    
    
    77,201Commissions
    
    
    21,899
    
    
    
    21,146
    
    
    
    21,589Other underwriting, acquisition and insurance
expenses
    
    
    10,947
    
    
    
    10,167
    
    
    
    10,866Capitalization of deferred policy acquisition costs
    
    
    (21,398
    )
    
    
    (20,975
    )
    
    
    (22,922
    )Amortization of deferred policy acquisition costs
    
    
    16,185
    
    
    
    17,861
    
    
    
    17,076Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,133
    
    
    
    1,519
    
    
    
    971Total benefits and expenses
    
    
    119,839
    
    
    
    113,632
    
    
    
    104,781Income before Federal income tax
    
    $
    13,909
    
    
    
    10,472
    
    
    
    712
 Premiums
  For the Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Premiums:First year
    
    $
    16,630
    
    
    
    16,294
    
    
    
    18,020Renewal
    
    
    93,355
    
    
    
    89,703
    
    
    
    84,010Total premium
    
    $
    109,985
    
    
    
    105,997
    
    
    
    102,030
  30




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Net Investment Income
 Realized Gains (Losses), Net
  For the Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Death claims
    
    $
    7,278
    
    
    
    7,986
    
    
    
    7,147Surrender expenses
    
    
    17,354
    
    
    
    17,672
    
    
    
    13,770Endowment benefits
    
    
    14,473
    
    
    
    14,051
    
    
    
    13,877Accident and health benefits
    
    
    443
    
    
    
    288
    
    
    
    290Other policy benefits
    
    
    1,492
    
    
    
    1,280
    
    
    
    1,157Total claims and surrenders
    
    $
    41,040
    
    
    
    41,277
    
    
    
    36,241
  Other Underwriting, Acquisition and Insurance Expenses
  31




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Home Service Insurance
  For the Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Revenue:Premiums
    
    $
    42,067
    
    
    
    41,283
    
    
    
    39,267Net investment income
    
    
    13,008
    
    
    
    12,680
    
    
    
    12,654Realized gains (losses), net
    
    
    1,475
    
    
    
    6,562
    
    
    
    (9,948
    )Other income
    
    
    82
    
    
    
    101
    
    
    
    273Total revenue
    
    
    56,632
    
    
    
    60,626
    
    
    
    42,246Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    19,998
    
    
    
    18,711
    
    
    
    20,012Increase in future policy benefit reserves
    
    
    3,801
    
    
    
    4,747
    
    
    
    2,871Policyholders dividends
    
    
    71
    
    
    
    86
    
    
    
    151Total insurance benefits paid or provided
    
    
    23,870
    
    
    
    23,544
    
    
    
    23,034Commissions
    
    
    14,686
    
    
    
    14,390
    
    
    
    14,395Other underwriting, acquisition and insurance
expenses
    
    
    14,307
    
    
    
    14,812
    
    
    
    14,459Capitalization of deferred policy acquisition costs
    
    
    (6,562
    )
    
    
    (6,157
    )
    
    
    (6,312
    )Amortization of deferred policy acquisition costs
    
    
    1,655
    
    
    
    2,817
    
    
    
    3,699Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,953
    
    
    
    1,975
    
    
    
    1,926Total benefits and expenses
    
    
    49,909
    
    
    
    51,381
    
    
    
    51,201Income (loss) before Federal income tax
    
    $
    6,723
    
    
    
    9,245
    
    
    
    (8,955
    )
 Premiums
 Net Investment Income
 Realized Gains (Losses), Net
  32




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Claims and Surrenders
  For the Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Death claims
    
    $
    15,392
    
    
    
    14,508
    
    
    
    15,382Surrender expenses
    
    
    2,374
    
    
    
    1,994
    
    
    
    1,452Endowment benefits
    
    
    26
    
    
    
    28
    
    
    
    (63
    )Property claims
    
    
    1,578
    
    
    
    1,590
    
    
    
    2,657Accident and health benefits
    
    
    165
    
    
    
    149
    
    
    
    137Other policy benefits
    
    
    463
    
    
    
    442
    
    
    
    447Total claims and surrenders
    
    $
    19,998
    
    
    
    18,711
    
    
    
    20,012
 Increase in Future Policy Benefit Reserves
 Other Underwriting, Acquisition and Insurance Expenses
 Other Non-Insurance Enterprises
  Investments
   33




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  December 31, 2010
    
    
    December 31, 2009Percent of Total
    
    
    
    
    
    
    Percent of TotalCarrying Value
    
    
    Carrying Value
    
    
    Carrying Value
    
    
    Carrying Value(In thousands)
    
    
    
    
    
    (In thousands)Fixed maturity securities:U.S. Government-sponsored corporations
and U.S. Government agencies
    
    $
    378,012
    
    
    
    48.7
    %
    
    $
    399,626
    
    
    
    55.6
    %Mortgage-backed (1)
    
    
    14,808
    
    
    
    1.9
    
    
    
    19,452
    
    
    
    2.7Corporate
    
    
    161,298
    
    
    
    20.8
    
    
    
    116,098
    
    
    
    16.1Municipal bonds (2)
    
    
    101,719
    
    
    
    13.1
    
    
    
    57,192
    
    
    
    7.9Foreign governments
    
    
    132
    
    
    
    
    
    
    
    120
    
    
    
    Total fixed maturity securities
    
    
    655,969
    
    
    
    84.6
    
    
    
    592,488
    
    
    
    82.3Cash and cash equivalents
    
    
    49,723
    
    
    
    6.4
    
    
    
    48,625
    
    
    
    6.8Short-term investments
    
    
    
    
    
    
    
    
    
    
    2,510
    
    
    
    0.3Other investments:Policy loans
    
    
    35,585
    
    
    
    4.6
    
    
    
    32,096
    
    
    
    4.5Equity securities
    
    
    23,304
    
    
    
    3.0
    
    
    
    33,477
    
    
    
    4.6Mortgage loans
    
    
    1,489
    
    
    
    0.2
    
    
    
    1,533
    
    
    
    0.2Real estate and other long-term investments
    
    
    9,348
    
    
    
    1.2
    
    
    
    9,216
    
    
    
    1.3Total cash, cash equivalents and investments
    
    $
    775,418
    
    
    
    100.0
    %
    
    $
    719,945
    
    
    
    100.0
    %
 
 (1)
    
    Includes $13.2 million and $16.2 million of U.S. Government agencies and
government-sponsored enterprises in 2010 and 2009, respectively.(2)
    
    Includes $53,979,000 of securities guaranteed by third parties for the year ended December 31, 2010.    December 31, 2010
    
    
    December 31, 2009Carrying Value
    
    
    %
    
    
    Carrying Value
    
    
    %(In thousands)
    
    
    
    
    
    
    (In thousands)AAA and U.S. Government
    
    $
    428,194
    
    
    
    65.3
    %
    
    $
    442,160
    
    
    
    74.2
    %AA
    
    
    59,454
    
    
    
    9.1
    
    
    
    26,613
    
    
    
    4.9A
    
    
    73,341
    
    
    
    11.2
    
    
    
    69,934
    
    
    
    11.8BBB
    
    
    84,489
    
    
    
    12.9
    
    
    
    48,311
    
    
    
    8.2BB and other
    
    
    10,491
    
    
    
    1.5
    
    
    
    5,470
    
    
    
    0.9Totals
    
    $
    655,969
    
    
    
    100.0
    %
    
    $
    592,488
    
    
    
    100.0
    %
  34




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  December 31, 2010Carrying Value
    
    
    Carrying Valuewith Third Party
    
    
    without Third PartyGuarantees
    
    
    Guarantees(In thousands)AAA
    
    $
    31,974
    
    
    $
    19,490AA
    
    
    42,602
    
    
    
    43,663A
    
    
    17,158
    
    
    
    26,181BBB
    
    
    4,700
    
    
    
    6,624BB and other
    
    
    5,285
    
    
    
    5,761Totals
    
    $
    101,719
    
    
    $
    101,719
   Valuation of Investments in Fixed Maturity and Equity Securities
    35




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
   Reinsurance
    Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Direct premiums
    
    $
    159,119
    
    
    
    155,727
    
    
    
    151,077Reinsurance assumed
    
    
    1,553
    
    
    
    1,416
    
    
    
    1,459Reinsurance ceded
    
    
    (8,620
    )
    
    
    (9,863
    )
    
    
    (11,239
    )Net premiums
    
    $
    152,052
    
    
    
    147,280
    
    
    
    141,297
   Years ended December 31,2010
    
    
    2009
    
    
    2008(In millions)Direct written life insurance inforce
    
    $
    4,452
    
    
    
    4,432
    
    
    
    4,322Reinsurance assumed
    
    
    1,045
    
    
    
    928
    
    
    
    647Reinsurance ceded
    
    
    (381
    )
    
    
    (363
    )
    
    
    (302
    )Net life insurance inforce
    
    $
    5,116
    
    
    
    4,997
    
    
    
    4,667
   36




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
   Liquidity and Capital Resources
         37




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
      Contractual Obligations and Off-balance Sheet Arrangements
  Parent Company Liquidity and Capital Resources
   38




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Critical Accounting Estimates
  Policy Liabilities
   Deferred Policy Acquisition Costs
      39




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Cost of Customer Relationships Acquired
   Goodwill
    Valuation of Investments in Fixed Maturity and Equity Securities
    40




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
    Premium Revenue and Related Expenses
   Tax Accounting
  Recent Accounting Pronouncements
   41




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 General
  Market Risk Related to Interest Rates
  December 31, 2010
    
    
    December 31, 2009Net
    
    
    
    
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedAmortized
    
    
    Fair
    
    
    Gains
    
    
    Amortized
    
    
    Fair
    
    
    GainsCost
    
    
    Value
    
    
    (Losses)
    
    
    Cost
    
    
    Value
    
    
    (Losses)(In thousands)Fixed maturities, available-for-sale
    
    $
    578,412
    
    
    
    575,737
    
    
    
    (2,675
    )
    
    
    389,195
    
    
    
    385,579
    
    
    
    (3,616
    )Fixed maturities, held-to-maturity
    
    
    80,232
    
    
    
    79,103
    
    
    
    (1,129
    )
    
    
    206,909
    
    
    
    199,676
    
    
    
    (7,233
    )Total fixed maturities
    
    $
    658,644
    
    
    
    654,840
    
    
    
    (3,804
    )
    
    
    596,104
    
    
    
    585,255
    
    
    
    (10,849
    )Total equity securities
    
    $
    19,844
    
    
    
    23,304
    
    
    
    3,460
    
    
    
    25,899
    
    
    
    33,477
    
    
    
    7,578
   Increases in Interest Rates  (In thousands)
 100 Basis Points
    
    
    200 Basis Points
    
    
    300 Basis PointsDecember 31, 2010
    
    $
    (68,765
    )
    
    
    (101,755
    )
    
    
    (135,085
    )December 31, 2009
    
    $
    (49,599
    )
    
    
    (97,573
    )
    
    
    (132,425
    )
   42




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Market Risk Related to Equity Prices
  
 Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
   
 Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A.
    
    CONTROLS AND PROCEDURES
 (a) Disclosure Controls and Procedures
   (b) Management Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework
  (c) Change in Internal Control over Financial Reporting
  (d) Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting
  43




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
         
  44




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Item 9B.
    
    OTHER INFORMATION
  
 PART III
 
 10, 11, 12, 13 14
 
 PART IV
 
 Item 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    (1) and (2) Filings as Part of this Report
 The financial statements and schedules listed on the following index to financial
statements and financial statement schedules are filed under Item 8 as part of this Form
10-K.
 (b)
    
    (3) Exhibits  See the Exhibit Index
 Index to Consolidated Financial Statements and Financial Statement Schedules
 PageReferenceReport of independent registered public accounting firm
    
    
    46Consolidated statements of financial position at December 31, 2010 and 2009
    
    
    47Consolidated statements of operations- years ended December 31, 2010, 2009 and 2008
    
    
    49Consolidated statements of stockholders equity and comprehensive income- years
ended December 31, 2010, 2009 and 2008
    
    
    50Consolidated statements of cash flows- years ended December 31, 2010, 2009 and 2008
    
    
    52Notes to consolidated financial statements
    
    
    54Schedule II  Condensed Financial Information of Registrant
    
    
    91Schedule III  Supplementary Insurance Information
    
    
    94Schedule IV  Reinsurance
    
    
    95
 All other schedules have been omitted because the required information is inapplicable
or the information required is presented in the financial statements or the notes
thereto filed elsewhere herein.
  45




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Report of Independent Registered Public Accounting Firm
     Internal Control-Integrated Framework
  
  46




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Financial Position
 December 31
 (In thousands)
 Assets
    
    2010
    
    
    2009Investments:Fixed maturities available-for-sale, at fair value
(cost: $578,412 in 2010 and $389,195 in 2009)
    
    $
    575,737
    
    
    
    385,579Fixed maturities held-to-maturity, at amortized cost
(fair value: $79,103 in 2010 and $199,676 in 2009)
    
    
    80,232
    
    
    
    206,909Equity securities available-for-sale, at fair value
(cost: $19,844 in 2010 and $25,899 in 2009)
    
    
    23,304
    
    
    
    33,477Mortgage loans on real estate
    
    
    1,489
    
    
    
    1,533Policy loans
    
    
    35,585
    
    
    
    32,096Real estate held for investment (less $1,017 and $913 accumulated
depreciation in 2010 and 2009, respectively)
    
    
    9,200
    
    
    
    9,032Other long-term investments
    
    
    148
    
    
    
    184Short-term investments
    
    
    
    
    
    
    2,510Total investments
    
    
    725,695
    
    
    
    671,320Cash and cash equivalents
    
    
    49,723
    
    
    
    48,625Accrued investment income
    
    
    7,433
    
    
    
    7,455Reinsurance recoverable
    
    
    9,729
    
    
    
    11,587Deferred policy acquisition costs
    
    
    125,684
    
    
    
    115,570Cost of customer relationships acquired
    
    
    31,631
    
    
    
    34,728Goodwill
    
    
    17,160
    
    
    
    17,160Other intangible assets
    
    
    1,019
    
    
    
    1,046Federal income tax receivable
    
    
    1,914
    
    
    
    4,023Property and equipment, net
    
    
    7,101
    
    
    
    6,018Due premiums, net (less $1,568 and $1,644 allowance for doubtful
accounts in 2010 and 2009, respectively)
    
    
    8,537
    
    
    
    8,960Prepaid expenses
    
    
    474
    
    
    
    288Other assets
    
    
    406
    
    
    
    546Total assets
    
    $
    986,506
    
    
    
    927,326
    47




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Financial Position, (Continued)
December 31
(In thousands, except share amounts)
 Liabilities and Stockholders Equity
    
    2010
    
    
    2009Liabilities:Future policy benefit reserves:Life insurance
    
    $
    637,140
    
    
    
    592,358Annuities
    
    
    42,096
    
    
    
    37,882Accident and health
    
    
    5,910
    
    
    
    6,399Dividend accumulations
    
    
    9,498
    
    
    
    5,621Premiums paid in advance
    
    
    23,675
    
    
    
    20,373Policy claims payable
    
    
    10,540
    
    
    
    10,222Other policyholders funds
    
    
    8,191
    
    
    
    8,105Total policy liabilities
    
    
    737,050
    
    
    
    680,960Commissions payable
    
    
    2,538
    
    
    
    2,434Deferred federal and state income taxes
    
    
    9,410
    
    
    
    8,052Payable for securities in process of settlement
    
    
    
    
    
    
    6,000Warrants outstanding
    
    
    1,587
    
    
    
    1,819Other liabilities
    
    
    8,287
    
    
    
    11,986Total liabilities
    
    
    758,872
    
    
    
    711,251Commitments and contingencies (Notes 5 and 8)Stockholders equity:Common stock:Class A, no par value, 100,000,000 shares authorized,
51,822,497 shares issued and outstanding in 2010 and 2009,
including shares in treasury of 3,135,738 in 2010 and 2009
    
    
    256,703
    
    
    
    256,703Class B, no par value, 2,000,000 shares authorized,
1,001,714 shares issued and outstanding in 2010 and 2009
    
    
    3,184
    
    
    
    3,184Accumulated deficit
    
    
    (22,581
    )
    
    
    (38,092
    )Accumulated other comprehensive income (loss):Net unrealized gains (losses) on securities, net of tax
    
    
    1,339
    
    
    
    5,291238,645
    
    
    
    227,086Treasury stock, at cost
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    227,634
    
    
    
    216,075Total liabilities and stockholders equity
    
    $
    986,506
    
    
    
    927,326
   48




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
 For the Years ended December 31
 (In thousands, except per share amounts)
 2010
    
    
    2009
    
    
    2008Revenues:Premiums:Life insurance
    
    $
    145,665
    
    
    
    141,001
    
    
    
    134,953Accident and health insurance
    
    
    1,577
    
    
    
    1,531
    
    
    
    1,580Property insurance
    
    
    4,810
    
    
    
    4,748
    
    
    
    4,764Net investment income
    
    
    30,077
    
    
    
    29,602
    
    
    
    30,478Realized gains (losses), net
    
    
    8,012
    
    
    
    8,040
    
    
    
    (23,812
    )Decrease (increase) in fair value of warrants
    
    
    232
    
    
    
    3,154
    
    
    
    (2,662
    )Other income
    
    
    808
    
    
    
    904
    
    
    
    1,372Total revenues
    
    
    191,181
    
    
    
    188,980
    
    
    
    146,673Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    61,038
    
    
    
    59,988
    
    
    
    56,253Increase in future policy benefit reserves
    
    
    46,420
    
    
    
    40,790
    
    
    
    37,117Policyholders dividends
    
    
    7,485
    
    
    
    6,680
    
    
    
    6,865Total insurance benefits paid or provided
    
    
    114,943
    
    
    
    107,458
    
    
    
    100,235Commissions
    
    
    36,585
    
    
    
    35,536
    
    
    
    35,984Other underwriting, acquisition and insurance
expenses
    
    
    27,057
    
    
    
    28,340
    
    
    
    28,611Capitalization of deferred policy acquisition costs
    
    
    (27,960
    )
    
    
    (27,132
    )
    
    
    (29,234
    )Amortization of deferred policy acquisition costs
    
    
    17,840
    
    
    
    20,678
    
    
    
    20,775Amortization of cost of customer relationships
acquired and other intangibles
    
    
    3,086
    
    
    
    3,494
    
    
    
    2,897Total benefits and expenses
    
    
    171,551
    
    
    
    168,374
    
    
    
    159,268Income (loss) before income tax expense
    
    
    19,630
    
    
    
    20,606
    
    
    
    (12,595
    )Income tax expense
    
    
    4,119
    
    
    
    3,266
    
    
    
    3,112Net income (loss)
    
    $
    15,511
    
    
    
    17,340
    
    
    
    (15,707
    )Net income (loss) applicable to common stockholders
    
    $
    15,511
    
    
    
    14,835
    
    
    
    (18,263
    )Per Share Amounts:Basic and
diluted earnings (loss) per share of  Class A common stock
    
    $
    0.32
    
    
    
    0.31
    
    
    
    (0.42
    )Basic and diluted earnings (loss) per share of Class B common stock
    
    $
    0.16
    
    
    
    0.15
    
    
    
    (0.21
    )
   49




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES



Consolidated Statements of Stockholders Equity and Comprehensive Income
For the Years ended December 31, 2010, 2009 and 2008
(In thousands)
 Accumulatedother
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Accumulated
    
    
    comprehensive
    
    
    Treasury
    
    
    StockholdersClass A
    
    
    Class B
    
    
    deficit
    
    
    income (loss)
    
    
    stock
    
    
    equityBalance at January 1, 2008
    
    $
    225,812
    
    
    
    3,184
    
    
    
    (39,725
    )
    
    
    (2,103
    )
    
    
    (11,011
    )
    
    
    176,157Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (15,707
    )
    
    
    
    
    
    
    
    
    
    
    (15,707
    )Unrealized investment losses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,608
    )
    
    
    
    
    
    
    (3,608
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    (15,707
    )
    
    
    (3,608
    )
    
    
    
    
    
    
    (19,315
    )Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    (1,905
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,905
    )Beneficial conversion feature and warrant
discounts on preferred stock capital contribution
    
    
    854
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    854Preferred stock conversions
    
    
    15,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,625Warrants exercised
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Balance at December 31, 2008
    
    
    240,511
    
    
    
    3,184
    
    
    
    (55,432
    )
    
    
    (5,711
    )
    
    
    (11,011
    )
    
    
    171,541Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    17,340
    
    
    
    
    
    
    
    
    
    
    
    17,340Unrealized investment gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,002
    
    
    
    
    
    
    
    11,002Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    17,340
    
    
    
    11,002
    
    
    
    
    
    
    
    28,342Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    (2,289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,289
    )Acquisition of Integrity Capital
    
    
    8,410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,410Preferred stock redemption
    
    
    10,001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,001Warrants exercised
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70Balance at December 31, 2009
    
    
    256,703
    
    
    
    3,184
    
    
    
    (38,092
    )
    
    
    5,291
    
    
    
    (11,011
    )
    
    
    216,075Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    15,511
    
    
    
    
    
    
    
    
    
    
    
    15,511Unrealized investment losses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,952
    )
    
    
    
    
    
    
    (3,952
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    15,511
    
    
    
    (3,952
    )
    
    
    
    
    
    
    11,559Balance at December 31, 2010
    
    $
    256,703
    
    
    
    3,184
    
    
    
    (22,581
    )
    
    
    1,339
    
    
    
    (11,011
    )
    
    
    227,634
   50




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders Equity and Comprehensive Income,

Continued

For the years ended December 31, 2010, 2009 and 2008

(In thousands)
  Common Stock
    
    
    TreasuryClass A
    
    
    Class B
    
    
    StockBalance at January 1, 2008
    
    
    46,206
    
    
    
    1,002
    
    
    
    (3,136
    )Stock dividends
    
    
    90
    
    
    
    
    
    
    
    Warrants exercised
    
    
    18
    
    
    
    
    
    
    
    Preferred stock conversions
    
    
    2,468
    
    
    
    
    
    
    
    Total stock issued in 2008
    
    
    2,576
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    48,782
    
    
    
    1,002
    
    
    
    (3,136
    )Stock dividends
    
    
    32
    
    
    
    
    
    
    
    Warrants exercised
    
    
    10
    
    
    
    
    
    
    
    Preferred stock redemption
    
    
    1,704
    
    
    
    
    
    
    
    Acquisition of Integrity Capital
    
    
    1,294
    
    
    
    
    
    
    
    Total stock issued in 2009
    
    
    3,040
    
    
    
    
    
    
    
    Balance at December 31, 2009
    
    
    51,822
    
    
    
    1,002
    
    
    
    (3,136
    )Total stock issued in 2010
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2010
    
    
    51,822
    
    
    
    1,002
    
    
    
    (3,136
    )
   51




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES


Consolidated Statements of Cash Flows
For the Years ended December 31
(In thousands)
 2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    15,511
    
    
    
    17,340
    
    
    
    (15,707
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Net realized losses (gains) on sale of investments and other
assets and other-than-temporary impairment
charges
    
    
    (8,012
    )
    
    
    (8,040
    )
    
    
    23,812Net deferred policy acquisition costs
    
    
    (10,120
    )
    
    
    (6,454
    )
    
    
    (8,459
    )Amortization of cost of customer relationships
acquired and other intangibles
    
    
    3,086
    
    
    
    3,494
    
    
    
    2,897Increase (decrease) in fair value of warrants
    
    
    (232
    )
    
    
    (3,154
    )
    
    
    2,662Depreciation
    
    
    1,048
    
    
    
    1,171
    
    
    
    1,116Amortization of premiums and discounts on
fixed maturities
    
    
    4,381
    
    
    
    2,043
    
    
    
    354Deferred federal income tax expense
    
    
    627
    
    
    
    2,329
    
    
    
    496Change in:Accrued investment income
    
    
    22
    
    
    
    15
    
    
    
    (127
    )Reinsurance recoverable
    
    
    1,858
    
    
    
    1,729
    
    
    
    275Due premiums and other receivables
    
    
    423
    
    
    
    47
    
    
    
    (1,227
    )Future policy benefit reserves
    
    
    45,896
    
    
    
    40,477
    
    
    
    36,100Other policy liabilities
    
    
    7,583
    
    
    
    2,477
    
    
    
    5,412Federal income tax
    
    
    2,109
    
    
    
    (1,922
    )
    
    
    (1,474
    )Commissions payable and other liabilities
    
    
    (3,594
    )
    
    
    (62
    )
    
    
    637Other, net
    
    
    (47
    )
    
    
    603
    
    
    
    (335
    )Net cash provided by operating activities
    
    
    60,539
    
    
    
    52,093
    
    
    
    46,432Cash flows from investing activities:Purchase of fixed maturities, held-to-maturity
    
    
    (71,452
    )
    
    
    (207,052
    )
    
    
    Maturities and calls of fixed maturities, held-to-maturity
    
    
    197,600
    
    
    
    
    
    
    
    Sale of fixed maturities, available-for-sale
    
    
    8,029
    
    
    
    74,181
    
    
    
    237Maturities and calls of fixed maturities, available-for-sale
    
    
    189,826
    
    
    
    292,706
    
    
    
    162,337Purchase of fixed maturities, available-for-sale
    
    
    (396,188
    )
    
    
    (255,251
    )
    
    
    (156,055
    )Sale of equity securities, available-for-sale
    
    
    22,822
    
    
    
    22,745
    
    
    
    Calls of equity securities, available-for-sale
    
    
    243
    
    
    
    
    
    
    
    Purchase of equity securities, available-for-sale
    
    
    (9,668
    )
    
    
    (637
    )
    
    
    (24,439
    )Principal payments on mortgage loans
    
    
    45
    
    
    
    31
    
    
    
    97Mortgage loans funded
    
    
    
    
    
    
    
    
    
    
    (115
    )Sale of other long-term investments and property
and equipment
    
    
    46
    
    
    
    933
    
    
    
    185
   52




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Cash Flows, Continued
For the Years ended December 31
(In thousands)
 2010
    
    
    2009
    
    
    2008Cash flows from investing activities (continued):Purchase of other long-term investments and property
and equipment
    
    $
    (2,366
    )
    
    
    (2,735
    )
    
    
    (1,110
    )Increase in policy loans, net
    
    
    (3,489
    )
    
    
    (3,141
    )
    
    
    (3,062
    )Maturity of short-term investments
    
    
    2,500
    
    
    
    2,250
    
    
    
    26,000Purchase of short-term investments
    
    
    
    
    
    
    (2,605
    )
    
    
    (10,173
    )Cash acquired from (paid for) acquisitions, net
    
    
    
    
    
    
    9,770
    
    
    
    (8,242
    )Net cash used in investing activities
    
    
    (62,052
    )
    
    
    (68,805
    )
    
    
    (14,340
    )Cash flows from financing activities:Series A-1 preferred stock capital contributions
    
    
    
    
    
    
    
    
    
    
    9,375Warrants exercised
    
    
    
    
    
    
    70
    
    
    
    125Annuity and universal life deposits
    
    
    5,775
    
    
    
    3,990
    
    
    
    2,848Annuity and universal life withdrawals
    
    
    (3,164
    )
    
    
    (2,515
    )
    
    
    (1,771
    )Net cash provided by financing activities
    
    
    2,611
    
    
    
    1,545
    
    
    
    10,577Net increase (decrease) in cash and cash equivalents
    
    
    1,098
    
    
    
    (15,167
    )
    
    
    42,669Cash and cash equivalents at beginning of year
    
    
    48,625
    
    
    
    63,792
    
    
    
    21,123Cash and cash equivalents at end of year
    
    $
    49,723
    
    
    
    48,625
    
    
    
    63,792Supplemental Disclosure of Operating ActivitiesCash paid during the year for income taxes
    
    $
    1,382
    
    
    
    2,876
    
    
    
    4,090
 Supplemental Disclosure of Non-Cash Investing Activities:
  
   Supplemental Disclosures of Non-Cash Financing Activities:
    53




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES



Notes to Consolidated Financial Statements
 Note 1:
    
    Summary of Significant Accounting Policies
 Basis of Presentation and Consolidation
      Significant Accounting Policies
 Investments
     54




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
       Premium Revenue and Related Expenses
   Deferred Policy Acquisition Costs and Cost of Customer Relationships Acquired
   55




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
      56




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  For the Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Balance at beginning of period
    
    $
    115,570
    
    
    
    109,114
    
    
    
    100,655Capitalized
    
    
    27,960
    
    
    
    27,132
    
    
    
    29,234Amortized
    
    
    (17,840
    )
    
    
    (20,678
    )
    
    
    (20,775
    )Effects of unrealized gains (losses)
    
    
    (6
    )
    
    
    2
    
    
    
    Balance at end of period
    
    $
    125,684
    
    
    
    115,570
    
    
    
    109,114
    For the Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Balance at beginning of period
    
    $
    34,728
    
    
    
    33,805
    
    
    
    31,636Acquisitions
    
    
    
    
    
    
    4,006
    
    
    
    5,038Amortization
    
    
    (3,059
    )
    
    
    (3,432
    )
    
    
    (2,869
    )Adjustment
    
    
    
    
    
    
    326
    
    
    
    Effects of unrealized gains (losses) on CCRA
    
    
    (38
    )
    
    
    23
    
    
    
    Balance at end of period
    
    $
    31,631
    
    
    
    34,728
    
    
    
    33,805
  Year
    
    Amount(In thousands)2011
    
    $
    2,2512012
    
    
    2,2512013
    
    
    2,1092014
    
    
    1,9542015
    
    
    1,811Thereafter
    
    
    21,255
  57




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Future Policy Benefits and Expenses
         Goodwill and Other Intangible Assets
   58




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
     AccumulatedGross
    
    
    amortization
    
    
    Net(In thousands)Balance at January 1, 2008
    
    $
    16,454
    
    
    
    (5,068
    )
    
    
    11,386Acquisition
    
    
    4,301
    
    
    
    
    
    
    
    4,301Balance at December 31, 2008
    
    
    20,755
    
    
    
    (5,068
    )
    
    
    15,687Acquisition
    
    
    1,238
    
    
    
    
    
    
    
    1,238Adjustments
    
    
    235
    
    
    
    
    
    
    
    235Balance at December 31, 2009
    
    
    22,228
    
    
    
    (5,068
    )
    
    
    17,160Adjustments
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2010
    
    $
    22,228
    
    
    
    (5,068
    )
    
    
    17,160
    59




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Participating Policies
    Earnings Per Share
     60




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands, except per share amounts)Basic and diluted earnings per share:Numerator:Net income (loss)
    
    $
    15,511
    
    
    
    17,340
    
    
    
    (15,707
    )Less: Preferred stock dividends
    
    
    
    
    
    
    (216
    )
    
    
    (651
    )Accretion of deferred issuance costs
and discounts on preferred stock
    
    
    
    
    
    
    (2,289
    )
    
    
    (1,905
    )Net income (loss) available to common
stockholders
    
    $
    15,511
    
    
    
    14,835
    
    
    
    (18,263
    )Net income (loss) allocated to Class A
common stock
    
    $
    15,353
    
    
    
    14,680
    
    
    
    (18,054
    )Net income (loss) allocated to Class B
common stock
    
    
    158
    
    
    
    155
    
    
    
    (209
    )Net income (loss) available to common
stockholders
    
    $
    15,511
    
    
    
    14,835
    
    
    
    (18,263
    )Denominator:Weighted average shares of Class A
outstanding  basic
    
    
    48,687
    
    
    
    47,554
    
    
    
    43,365Weighted average shares of Class B
outstanding  basic and diluted
    
    
    1,002
    
    
    
    1,002
    
    
    
    1,002Total weighted average shares
outstanding  basic
    
    
    49,689
    
    
    
    48,556
    
    
    
    44,367Basic and diluted earnings (loss) per share of
Class A common stock
    
    $
    0.32
    
    
    
    0.31
    
    
    
    (0.42
    )Basic and diluted earnings (loss) per share of
Class B common stock
    
    $
    0.16
    
    
    
    0.15
    
    
    
    (0.21
    )
    Income Taxes
   61




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
   Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Valuation Allowance:Balance at beginning of period
    
    $
    (2,462
    )
    
    
    (7,704
    )
    
    
    Tax benefit (expense) in income tax expense
    
    
    2,462
    
    
    
    2,795
    
    
    
    (6,900
    )Tax benefit (expense) in other
comprehensive income
    
    
    
    
    
    
    2,701
    
    
    
    Adjustment to goodwill
    
    
    
    
    
    
    (254
    )
    
    
    (804
    )Balance at end of period
    
    $
    
    
    
    
    (2,462
    )
    
    
    (7,704
    )
 Property and Equipment
   At December 31,2010
    
    
    2009(In thousands)Property and equipment:Home office land and buildings
    
    $
    8,136
    
    
    
    6,551Furniture and equipment
    
    
    2,216
    
    
    
    2,191Electronic data processing
equipment
    
    
    3,687
    
    
    
    3,483Automobiles and marine assets
    
    
    356
    
    
    
    345Airplane
    
    
    3,282
    
    
    
    3,282Total property and equipment
    
    
    17,677
    
    
    
    15,852Accumulated depreciation
    
    
    (10,576
    )
    
    
    (9,834
    )Net property and equipment
    
    $
    7,101
    
    
    
    6,018
 Reinsurance Recoverable
   62




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Cash Equivalents
  Depreciation
  Use of Estimates
  Reclassification
  Accounting Pronouncements
 Adoption of New Accounting Standards
  Accounting for Costs Associated with Acquiring or
Renewing Insurance Contracts
  63




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
        64




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
    Health Care Reform
   65




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Financial Reform
  Note 2:
    
    Investments
  December 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Percent of Total
    
    
    Carrying
    
    
    Percent of TotalValue
    
    
    Carrying Value
    
    
    Value
    
    
    Carrying Value(In thousands)
    
    
    
    
    
    (In thousands)Fixed maturity securities
    
    $
    655,969
    
    
    
    84.6
    %
    
    $
    592,488
    
    
    
    82.3
    %Equity securities
    
    
    23,304
    
    
    
    3.0
    
    
    
    33,477
    
    
    
    4.6Mortgage loans
    
    
    1,489
    
    
    
    0.2
    
    
    
    1,533
    
    
    
    0.2Policy loans
    
    
    35,585
    
    
    
    4.6
    
    
    
    32,096
    
    
    
    4.5Real estate and other
long-term investments
    
    
    9,348
    
    
    
    1.2
    
    
    
    9,216
    
    
    
    1.3Short-term investments
    
    
    
    
    
    
    0.0
    
    
    
    2,510
    
    
    
    0.3Cash and cash equivalents
    
    
    49,723
    
    
    
    6.4
    
    
    
    48,625
    
    
    
    6.8Total cash, cash
equivalents and
investments
    
    $
    775,418
    
    
    
    100.0
    %
    
    $
    719,945
    
    
    
    100.0
    %
  66




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  December 31, 2010Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Fixed Maturities Available-for-Sale:U.S. Treasury securities
    
    $
    10,908
    
    
    
    1,917
    
    
    
    
    
    
    
    12,825U.S. Government-sponsored enterprises
    
    
    290,904
    
    
    
    441
    
    
    
    6,390
    
    
    
    284,955States of the United States and political
subdivisions of the states
    
    
    107,214
    
    
    
    539
    
    
    
    6,034
    
    
    
    101,719Foreign governments
    
    
    106
    
    
    
    26
    
    
    
    
    
    
    
    132Corporate
    
    
    155,277
    
    
    
    7,237
    
    
    
    1,216
    
    
    
    161,298Securities not due at a single maturity date
    
    
    14,003
    
    
    
    833
    
    
    
    28
    
    
    
    14,808Total fixed maturities
available-for-sale
    
    
    578,412
    
    
    
    10,993
    
    
    
    13,668
    
    
    
    575,737Fixed Maturities Held-to-Maturity:U.S. Government-sponsored enterprises
    
    
    80,232
    
    
    
    272
    
    
    
    1,401
    
    
    
    79,103Total Fixed Maturities
    
    $
    658,644
    
    
    
    11,265
    
    
    
    15,069
    
    
    
    654,840Total Equity Securities
    
    $
    19,844
    
    
    
    3,460
    
    
    
    
    
    
    
    23,304
 December 31, 2009Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Fixed Maturities Available-for-Sale:U.S. Treasury securities
    
    $
    11,110
    
    
    
    1,324
    
    
    
    
    
    
    
    12,434U.S. Government-sponsored enterprises
    
    
    184,797
    
    
    
    96
    
    
    
    4,610
    
    
    
    180,283States of the United States and political
subdivisions of the states
    
    
    60,070
    
    
    
    321
    
    
    
    3,199
    
    
    
    57,192Foreign governments
    
    
    105
    
    
    
    15
    
    
    
    
    
    
    
    120Corporate
    
    
    114,175
    
    
    
    3,726
    
    
    
    1,803
    
    
    
    116,098Securities not due at a single maturity date
    
    
    18,938
    
    
    
    556
    
    
    
    42
    
    
    
    19,452Total fixed maturities
available-for-sale
    
    
    389,195
    
    
    
    6,038
    
    
    
    9,654
    
    
    
    385,579Fixed Maturities Held-to-Maturity:U.S. Government-sponsored enterprises
    
    
    206,909
    
    
    
    18
    
    
    
    7,251
    
    
    
    199,676Total Fixed Securities
    
    $
    596,104
    
    
    
    6,056
    
    
    
    16,905
    
    
    
    585,255Total Equity Securities
    
    $
    25,899
    
    
    
    7,578
    
    
    
    
    
    
    
    33,477
  67




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  December 31, 2010Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # ofValue
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities(In thousands, except for # of securities)Available-for-sale securities:U.S. Government-sponsored
enterprises
    
    $
    234,994
    
    
    
    6,390
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    234,994
    
    
    
    6,390
    
    
    
    170States of the United States and
political subdivisions of
the states
    
    
    66,836
    
    
    
    3,270
    
    
    
    60
    
    
    
    9,626
    
    
    
    2,764
    
    
    
    8
    
    
    
    76,462
    
    
    
    6,034
    
    
    
    68Corporate
    
    
    28,072
    
    
    
    1,040
    
    
    
    21
    
    
    
    2,443
    
    
    
    176
    
    
    
    7
    
    
    
    30,515
    
    
    
    1,216
    
    
    
    28Securities not due at a single
maturity date
    
    
    569
    
    
    
    8
    
    
    
    2
    
    
    
    201
    
    
    
    20
    
    
    
    5
    
    
    
    770
    
    
    
    28
    
    
    
    7Total available-for-sale
    
    
    330,471
    
    
    
    10,708
    
    
    
    253
    
    
    
    12,270
    
    
    
    2,960
    
    
    
    20
    
    
    
    342,741
    
    
    
    13,668
    
    
    
    273Held-to-maturity securities:U.S. Government-sponsored
enterprises
    
    
    45,699
    
    
    
    1,402
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,699
    
    
    
    1,401
    
    
    
    18Total fixed maturities
    
    $
    376,170
    
    
    
    12,110
    
    
    
    271
    
    
    
    12,270
    
    
    
    2,960
    
    
    
    20
    
    
    
    388,440
    
    
    
    15,069
    
    
    
    291
     68




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  December 31, 2009Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # ofValue
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities(In thousands, except for # of securities)Available-for-sale securities:U.S. Government-sponsored
enterprises
    
    $
    169,514
    
    
    
    4,610
    
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,514
    
    
    
    4,610
    
    
    
    213States of the United States and
political
subdivisions of the
states
    
    
    19,055
    
    
    
    343
    
    
    
    19
    
    
    
    14,995
    
    
    
    (2,856
    )
    
    
    15
    
    
    
    34,050
    
    
    
    3,199
    
    
    
    34Corporate
    
    
    36,342
    
    
    
    541
    
    
    
    21
    
    
    
    12,857
    
    
    
    (1,261
    )
    
    
    12
    
    
    
    49,199
    
    
    
    1,802
    
    
    
    33Securities not due at a single
maturity date
    
    
    179
    
    
    
    1
    
    
    
    1
    
    
    
    637
    
    
    
    (42
    )
    
    
    8
    
    
    
    816
    
    
    
    43
    
    
    
    9Total available-for-sale
    
    
    225,090
    
    
    
    5,495
    
    
    
    254
    
    
    
    28,489
    
    
    
    (4,159
    )
    
    
    35
    
    
    
    253,579
    
    
    
    9,654
    
    
    
    289Held-to-maturity securities:U.S. Government-sponsored
enterprises
    
    
    185,659
    
    
    
    7,251
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,659
    
    
    
    7,251
    
    
    
    81Total fixed maturities
    
    $
    410,749
    
    
    
    12,746
    
    
    
    335
    
    
    
    28,489
    
    
    
    (4,159
    )
    
    
    35
    
    
    
    439,238
    
    
    
    16,905
    
    
    
    370
  Cost orAmortized Cost
    
    
    Fair Value(In thousands)Available-for-sale securities:Due in one year or less
    
    $
    4,700
    
    
    
    4,833Due after one year through five years
    
    
    30,972
    
    
    
    32,349Due after five years through ten years
    
    
    120,894
    
    
    
    121,910Due after ten years
    
    
    407,843
    
    
    
    401,837Total available-for-sale securities
    
    
    564,409
    
    
    
    560,929Held-to-maturity securities:Due after five years through ten years
    
    
    6,040
    
    
    
    6,045Due after ten years
    
    
    74,192
    
    
    
    73,058Total held-to-maturity securities
    
    
    80,232
    
    
    
    79,103Securities not due at a single maturity date
    
    
    14,003
    
    
    
    14,808Total fixed maturities
    
    $
    658,644
    
    
    
    654,840
    69




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Investment income on:Fixed maturities
    
    $
    26,829
    
    
    
    25,921
    
    
    
    27,536Equity securities
    
    
    713
    
    
    
    1,056
    
    
    
    1,027Mortgage loans on real
estate
    
    
    101
    
    
    
    50
    
    
    
    28Policy loans
    
    
    2,704
    
    
    
    2,444
    
    
    
    2,105Long-term investments
    
    
    246
    
    
    
    465
    
    
    
    39Other
    
    
    207
    
    
    
    507
    
    
    
    35730,800
    
    
    
    30,443
    
    
    
    31,092Investment expenses
    
    
    (723
    )
    
    
    (841
    )
    
    
    (614
    )Net investment income
    
    $
    30,077
    
    
    
    29,602
    
    
    
    30,478
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Proceeds
    
    $
    8,029
    
    
    
    74,181
    
    
    
    237Gross realized gains
    
    $
    912
    
    
    
    2,752
    
    
    
    5Gross realized losses
    
    $
    25
    
    
    
    
    
    
    
    
    Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Proceeds
    
    $
    22,822
    
    
    
    22,745
    
    
    
    Gross realized gains
    
    $
    7,254
    
    
    
    5,292
    
    
    
    Gross realized losses
    
    $
    11
    
    
    
    
    
    
    
    
   70




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Realized gains (losses):Sales, calls and maturities:Fixed maturities
    
    $
    753
    
    
    
    2,705
    
    
    
    (2
    )Equity securities
    
    
    7,343
    
    
    
    5,292
    
    
    
    Property and equipment
    
    
    (8
    )
    
    
    323
    
    
    
    (4
    )Other long-term
investments
    
    
    (49
    )
    
    
    16
    
    
    
    18Net realized gains (losses)
    
    
    8,039
    
    
    
    8,336
    
    
    
    12Other-than-temporary impairments:Fixed maturities
    
    
    (27
    )
    
    
    (103
    )
    
    
    (288
    )Equity securities
    
    
    
    
    
    
    (193
    )
    
    
    (23,536
    )Realized loss on OTTI
    
    
    (27
    )
    
    
    (296
    )
    
    
    (23,824
    )Net realized gains (losses)
    
    $
    8,012
    
    
    
    8,040
    
    
    
    (23,812
    )
 Note 3:
    
    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.
     71




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Fair Value MeasurementsDecember 31, 2010TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)Financial assets:Fixed maturities available-for-sale:U.S. Treasury and U.S. Government-sponsored enterprises
    
    $
    12,825
    
    
    
    284,955
    
    
    
    
    
    
    
    297,780Corporate
    
    
    
    
    
    
    161,298
    
    
    
    
    
    
    
    161,298Municipal bonds
    
    
    
    
    
    
    101,719
    
    
    
    
    
    
    
    101,719Mortgage-backed
    
    
    
    
    
    
    14,289
    
    
    
    519
    
    
    
    14,808Foreign governments
    
    
    
    
    
    
    132
    
    
    
    
    
    
    
    132Total fixed maturities,
available-for-sale
    
    
    12,825
    
    
    
    562,393
    
    
    
    519
    
    
    
    575,737Total equity securities,
available-for-sale
    
    
    23,304
    
    
    
    
    
    
    
    
    
    
    
    23,304Total financial assets
    
    $
    36,129
    
    
    
    562,393
    
    
    
    519
    
    
    
    599,041Financial liabilities:Warrants outstanding
    
    $
    
    
    
    
    1,587
    
    
    
    
    
    
    
    1,587
 Fair Value MeasurementsDecember 31, 2009TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)Financial assets:Fixed maturities available-for-sale:U.S. Treasury and U.S. Government-sponsored enterprises
    
    $
    12,434
    
    
    
    180,283
    
    
    
    
    
    
    
    192,717Corporate
    
    
    
    
    
    
    116,098
    
    
    
    
    
    
    
    116,098Municipal bonds
    
    
    
    
    
    
    57,192
    
    
    
    
    
    
    
    57,192Mortgage-backed
    
    
    
    
    
    
    18,875
    
    
    
    577
    
    
    
    19,452Foreign governments
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    120Short-term investments
    
    
    
    
    
    
    2,510
    
    
    
    
    
    
    
    2,510Total fixed maturities,
available-for-sale
    
    
    12,434
    
    
    
    375,078
    
    
    
    577
    
    
    
    388,089Total equity securities,
available-for-sale
    
    
    33,477
    
    
    
    
    
    
    
    
    
    
    
    33,477Total financial assets
    
    $
    45,911
    
    
    
    375,078
    
    
    
    577
    
    
    
    421,566Financial liabilities:Warrants outstanding
    
    $
    
    
    
    
    1,819
    
    
    
    
    
    
    
    1,819
 Financial Instruments Valuation
 Fixed maturity securities, available-for-sale
  72




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Equity securities, available-for-sale
 Short-term investments
 Warrants outstanding.
  December 31, 2010(In thousands)Ending Balance at December 31, 2009
    
    $
    577Total realized and unrealized gains (losses):Included in net income
    
    
    Included in other comprehensive income
    
    
    (6
    )Principal paydowns
    
    
    (52
    )Transfer in and (out) of Level 3
    
    
    Ending Balance at December 31, 2010
    
    $
    519
  Financial Instruments not Carried at Fair Value
  December 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In thousands)Financial assets:Fixed maturities,
held-to-maturity
    
    $
    80,232
    
    
    
    79,103
    
    
    
    206,909
    
    
    
    199,676Mortgage loans
    
    
    1,489
    
    
    
    1,433
    
    
    
    1,533
    
    
    
    1,484Policy loans
    
    
    35,585
    
    
    
    35,585
    
    
    
    32,096
    
    
    
    32,096Cash and cash equivalents
    
    
    49,723
    
    
    
    49,723
    
    
    
    48,625
    
    
    
    48,625Financial liabilities:Annuities
    
    
    42,096
    
    
    
    38,619
    
    
    
    37,882
    
    
    
    33,980
    73




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
    Note 4:
    
    Policy Liabilities
   Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Policy claims payable at January 1
    
    $
    10,222
    
    
    
    9,318
    
    
    
    6,908Less: reinsurance recoverable
    
    
    2,455
    
    
    
    2,706
    
    
    
    1,918Net balance at January 1
    
    
    7,767
    
    
    
    6,612
    
    
    
    4,990Acquisition of ONLIC and ICIC, gross
and net
    
    
    
    
    
    
    6
    
    
    
    140Add claims incurred, related to:Current year
    
    
    26,043
    
    
    
    25,077
    
    
    
    25,308Prior years
    
    
    (1,187
    )
    
    
    (556
    )
    
    
    30524,856
    
    
    
    24,521
    
    
    
    25,613Deduct claims paid, related to:Current year
    
    
    18,072
    
    
    
    18,386
    
    
    
    19,735Prior years
    
    
    5,199
    
    
    
    4,986
    
    
    
    4,39623,271
    
    
    
    23,372
    
    
    
    24,131Net balance December 31
    
    
    9,352
    
    
    
    7,767
    
    
    
    6,612Plus: reinsurance recoverable
    
    
    1,188
    
    
    
    2,455
    
    
    
    2,706Policy claims payable, December 31
    
    $
    10,540
    
    
    
    10,222
    
    
    
    9,318
  74




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
    Note 5:
    
    Reinsurance
    75




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  At December 31,2010
    
    
    2009(In thousands)Aggregate assumed life insurance in force
    
    $
    1,044,759
    
    
    
    927,917Aggregate ceded life insurance in force
    
    $
    (381,076
    )
    
    
    (362,891
    )Net life insurance in force
    
    $
    5,115,662
    
    
    
    4,997,043
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Premiums from short-duration
contracts:Direct
    
    $
    6,994
    
    
    
    6,834
    
    
    
    6,856Assumed
    
    
    
    
    
    
    
    
    
    
    Ceded
    
    
    (1,131
    )
    
    
    (1,066
    )
    
    
    (1,202
    )Net premiums earned
    
    
    5,863
    
    
    
    5,768
    
    
    
    5,654Premiums from long-duration
contracts:Direct
    
    
    152,125
    
    
    
    148,893
    
    
    
    144,221Assumed
    
    
    1,553
    
    
    
    1,416
    
    
    
    1,459Ceded
    
    
    (7,489
    )
    
    
    (8,797
    )
    
    
    (10,037
    )Net premiums earned
    
    
    146,189
    
    
    
    141,512
    
    
    
    135,643Total premiums earned
    
    $
    152,052
    
    
    
    147,280
    
    
    
    141,297Claims and surrenders assumed
    
    $
    1,549
    
    
    
    1,434
    
    
    
    1,429Claims and surrenders ceded
    
    $
    (5,341
    )
    
    
    (5,649
    )
    
    
    (9,982
    )
  Note 6:
    
    Stockholders Equity and Restrictions
   76




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  At December 31,2010
    
    
    2009(In thousands)(Unaudited)Combined Statutory Stockholders EquityLife insurance operations
    
    $
    98,261
    
    
    
    106,688Property insurance operations
    
    
    4,646
    
    
    
    4,655Total statutory capital and surplus
    
    $
    102,907
    
    
    
    111,343
 Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)(Unaudited)Combined Statutory Net Income (Loss)Life insurance operations
    
    $
    7,534
    
    
    
    15,546
    
    
    
    (11,839
    )Property insurance operations
    
    
    (7
    )
    
    
    (444
    )
    
    
    (1,436
    )Total statutory net income (loss)
    
    $
    7,527
    
    
    
    15,102
    
    
    
    (13,275
    )
   Note 7:
    
    Convertible Preferred Stock
     77




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Note 8:
    
    Commitments and Contingencies
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligation
    
    Total
    
    
    Year
    
    
    1 to 3 Years
    
    
    3 to 5 Years
    
    
    Years(In thousands)Operating leases
    
    $
    747
    
    
    
    347
    
    
    
    384
    
    
    
    16
    
    
    
    Future policy benefit reserves:Life insurance
    
    
    637,140
    
    
    
    237
    
    
    
    1,329
    
    
    
    12,476
    
    
    
    623,098Annuities
    
    
    42,096
    
    
    
    22,021
    
    
    
    9,870
    
    
    
    4,255
    
    
    
    5,950Accident and health
    
    
    5,910
    
    
    
    5,910
    
    
    
    
    
    
    
    
    
    
    
    Total future policy benefit
reserves
    
    
    685,146
    
    
    
    28,168
    
    
    
    11,199
    
    
    
    16,731
    
    
    
    629,048Policy claims payable:Life insurance
    
    
    9,528
    
    
    
    9,528
    
    
    
    
    
    
    
    
    
    
    
    Accident and health
    
    
    521
    
    
    
    521
    
    
    
    
    
    
    
    
    
    
    
    Casualty
    
    
    491
    
    
    
    491
    
    
    
    
    
    
    
    
    
    
    
    Total policy claims payable
    
    
    10,540
    
    
    
    10,540
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    696,433
    
    
    
    39,055
    
    
    
    11,583
    
    
    
    16,747
    
    
    
    629,048
   Delia Bolanos Andrade, et al., Plaintiffs, v. Citizens Insurance Company of
America, et al., Defendants
  78




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  
    
    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.
   79




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Note 9:
    
    Segment and Other Operating Information
 Operating Segment Information
   For the Year Ended December 31, 2010OtherLife
    
    
    Home
    
    
    Non-InsuranceInsurance
    
    
    Service
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    109,985
    
    
    
    42,067
    
    
    
    
    
    
    
    152,052Net investment income
    
    
    16,523
    
    
    
    13,008
    
    
    
    546
    
    
    
    30,077Realized gains, net
    
    
    6,590
    
    
    
    1,475
    
    
    
    (53
    )
    
    
    8,012Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    232
    
    
    
    232Other income
    
    
    650
    
    
    
    82
    
    
    
    76
    
    
    
    808Total revenue
    
    
    133,748
    
    
    
    56,632
    
    
    
    801
    
    
    
    191,181Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    41,040
    
    
    
    19,998
    
    
    
    
    
    
    
    61,038Increase in future policy benefit reserves
    
    
    42,619
    
    
    
    3,801
    
    
    
    
    
    
    
    46,420Policyholders dividends
    
    
    7,414
    
    
    
    71
    
    
    
    
    
    
    
    7,485Total insurance benefits paid or provided
    
    
    91,073
    
    
    
    23,870
    
    
    
    
    
    
    
    114,943Commissions
    
    
    21,899
    
    
    
    14,686
    
    
    
    
    
    
    
    36,585Other underwriting, acquisition and insurance
expenses
    
    
    10,947
    
    
    
    14,307
    
    
    
    1,803
    
    
    
    27,057Capitalization of deferred policy acquisition costs
    
    
    (21,398
    )
    
    
    (6,562
    )
    
    
    
    
    
    
    (27,960
    )Amortization of deferred policy acquisition costs
    
    
    16,185
    
    
    
    1,655
    
    
    
    
    
    
    
    17,840Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,133
    
    
    
    1,953
    
    
    
    
    
    
    
    3,086Total benefits and expenses
    
    
    119,839
    
    
    
    49,909
    
    
    
    1,803
    
    
    
    171,551Income before income tax expense
    
    $
    13,909
    
    
    
    6,723
    
    
    
    (1,002
    )
    
    
    19,630
  80




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 For the Year Ended December 31, 2009OtherLife
    
    
    Home
    
    
    Non-InsuranceInsurance
    
    
    Service
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    105,997
    
    
    
    41,283
    
    
    
    
    
    
    
    147,280Net investment income
    
    
    16,667
    
    
    
    12,680
    
    
    
    255
    
    
    
    29,602Realized gains (losses), net
    
    
    1,100
    
    
    
    6,562
    
    
    
    378
    
    
    
    8,040Increase in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    3,154
    
    
    
    3,154Other income
    
    
    340
    
    
    
    101
    
    
    
    463
    
    
    
    904Total revenue
    
    
    124,104
    
    
    
    60,626
    
    
    
    4,250
    
    
    
    188,980Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    41,277
    
    
    
    18,711
    
    
    
    
    
    
    
    59,988Increase in future policy benefit reserves
    
    
    36,043
    
    
    
    4,747
    
    
    
    
    
    
    
    40,790Policyholders dividends
    
    
    6,594
    
    
    
    86
    
    
    
    
    
    
    
    6,680Total insurance benefits paid or provided
    
    
    83,914
    
    
    
    23,544
    
    
    
    
    
    
    
    107,458Commissions
    
    
    21,146
    
    
    
    14,390
    
    
    
    
    
    
    
    35,536Other underwriting, acquisition and insurance
expenses
    
    
    10,167
    
    
    
    14,812
    
    
    
    3,361
    
    
    
    28,340Capitalization of deferred policy acquisition costs
    
    
    (20,975
    )
    
    
    (6,157
    )
    
    
    
    
    
    
    (27,132
    )Amortization of deferred policy acquisition costs
    
    
    17,861
    
    
    
    2,817
    
    
    
    
    
    
    
    20,678Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,519
    
    
    
    1,975
    
    
    
    
    
    
    
    3,494Total benefits and expenses
    
    
    113,632
    
    
    
    51,381
    
    
    
    3,361
    
    
    
    168,374Income (loss) before income tax expense
    
    $
    10,472
    
    
    
    9,245
    
    
    
    889
    
    
    
    20,606
  81




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 For the Year Ended December 31, 2008OtherLife
    
    
    Home
    
    
    Non-InsuranceInsurance
    
    
    Service
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    102,030
    
    
    
    39,267
    
    
    
    
    
    
    
    141,297Net investment income
    
    
    17,015
    
    
    
    12,654
    
    
    
    809
    
    
    
    30,478Realized gains (losses), net
    
    
    (13,882
    )
    
    
    (9,948
    )
    
    
    18
    
    
    
    (23,812
    )Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    (2,662
    )
    
    
    (2,662
    )Other income
    
    
    330
    
    
    
    273
    
    
    
    769
    
    
    
    1,372Total revenue
    
    
    105,493
    
    
    
    42,246
    
    
    
    (1,066
    )
    
    
    146,673Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    36,241
    
    
    
    20,012
    
    
    
    
    
    
    
    56,253Increase in future policy benefit reserves
    
    
    34,246
    
    
    
    2,871
    
    
    
    
    
    
    
    37,117Policyholders dividends
    
    
    6,714
    
    
    
    151
    
    
    
    
    
    
    
    6,865Total insurance benefits paid or provided
    
    
    77,201
    
    
    
    23,034
    
    
    
    
    
    
    
    100,235Commissions
    
    
    21,589
    
    
    
    14,395
    
    
    
    
    
    
    
    35,984Other underwriting, acquisition and insurance
expenses
    
    
    10,866
    
    
    
    14,459
    
    
    
    3,286
    
    
    
    28,611Capitalization of deferred policy acquisition costs
    
    
    (22,922
    )
    
    
    (6,312
    )
    
    
    
    
    
    
    (29,234
    )Amortization of deferred policy acquisition costs
    
    
    17,076
    
    
    
    3,699
    
    
    
    
    
    
    
    20,775Amortization of cost of customer relationships
acquired and other intangibles
    
    
    971
    
    
    
    1,926
    
    
    
    
    
    
    
    2,897Total benefits and expenses
    
    
    104,781
    
    
    
    51,201
    
    
    
    3,286
    
    
    
    159,268Income (loss) before income tax expense
    
    $
    712
    
    
    
    (8,955
    )
    
    
    (4,352
    )
    
    
    (12,595
    )
  82




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  At December 31,2010
    
    
    2009(In thousands)Assets:Life Insurance
    
    $
    582,143
    
    
    
    547,775Home Service Insurance
    
    
    348,635
    
    
    
    341,920Other Non-Insurance Enterprises
    
    
    55,728
    
    
    
    37,631Total
    
    
    986,506
    
    
    
    927,326
  Years Ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Premium income:Ordinary life
    
    $
    144,350
    
    
    
    139,843
    
    
    
    133,775Group life
    
    
    1,315
    
    
    
    1,158
    
    
    
    1,178Accident and health
    
    
    1,577
    
    
    
    1,531
    
    
    
    1,580Property
    
    
    4,810
    
    
    
    4,748
    
    
    
    4,764Total premium income
    
    $
    152,052
    
    
    
    147,280
    
    
    
    141,297
 Geographic Information
  Area
    
    2010
    
    
    2009
    
    
    2008(In thousands)United States
    
    $
    53,189
    
    
    
    53,741
    
    
    
    51,616Colombia
    
    
    21,377
    
    
    
    23,254
    
    
    
    19,476Taiwan
    
    
    14,270
    
    
    
    13,629
    
    
    
    13,797Venezuela
    
    
    16,655
    
    
    
    13,845
    
    
    
    12,531Ecuador
    
    
    12,278
    
    
    
    10,737
    
    
    
    10,899Argentina
    
    
    9,134
    
    
    
    8,535
    
    
    
    9,596Other foreign countries
    
    
    32,216
    
    
    
    31,986
    
    
    
    33,162Net reinsurance
    
    
    (7,067
    )
    
    
    (8,447
    )
    
    
    (9,780
    )Total
    
    $
    152,052
    
    
    
    147,280
    
    
    
    141,297
  83




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Note 10:
    
    Income Taxes
   OtherDeferred Tax
    
    
    Comprehensive
    
    
    
    
    
    
    Income TaxLiability
    
    
    Income
    
    
    Goodwill
    
    
    Expense(In thousands)Established on 2008 OTTIs
    
    $
    (6,900
    )
    
    
    
    
    
    
    
    
    
    
    6,900Established on securities acquired
in Ozark acquisition
    
    
    (804
    )
    
    
    
    
    
    
    804
    
    
    
    Balance at December 31, 2008
    
    
    (7,704
    )
    
    
    
    
    
    
    804
    
    
    
    6,900Release of valuation allowance in 2009
    
    
    5,242
    
    
    
    (2,701
    )
    
    
    254
    
    
    
    (2,795
    )Balance at December 31, 2009
    
    
    (2,462
    )
    
    
    (2,701
    )
    
    
    1,058
    
    
    
    4,105Release of valuation allowance in 2010
    
    
    2,462
    
    
    
    1,858
    
    
    
    
    
    
    
    (4,320
    )Balance at December 31, 2010
    
    $
    
    
    
    
    (843
    )
    
    
    1,058
    
    
    
    (215
    )
  84




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Expected tax expense (benefit)
    
    $
    6,870
    
    
    
    7,212
    
    
    
    (4,408
    )Change in valuation allowance
    
    
    (2,462
    )
    
    
    (2,795
    )
    
    
    6,900Release of valuation allowance previously
held in other comprehensive income
    
    
    (1,858
    )
    
    
    
    
    
    
    Taxable intercompany stock sales
    
    
    1,369
    
    
    
    
    
    
    
    Tax-exempt interest
    
    
    (203
    )
    
    
    (196
    )
    
    
    (234
    )Change in fair value of options and
warrants
    
    
    (81
    )
    
    
    (1,104
    )
    
    
    932Adjustment of prior year taxes
    
    
    566
    
    
    
    36
    
    
    
    23Effect of graduated rates
    
    
    
    
    
    
    25
    
    
    
    (62
    )Other
    
    
    (82
    )
    
    
    88
    
    
    
    (39
    )Total income tax expense
    
    $
    4,119
    
    
    
    3,266
    
    
    
    3,112
  Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Current
    
    $
    3,492
    
    
    
    937
    
    
    
    2,616Deferred
    
    
    627
    
    
    
    2,329
    
    
    
    496Total income tax expense
    
    $
    4,119
    
    
    
    3,266
    
    
    
    3,112
  85




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  At December 31,2010
    
    
    2009(In thousands)Deferred tax assets:Future policy benefit reserves
    
    $
    26,699
    
    
    
    23,636Net operating and capital loss carryforwards
    
    
    4,249
    
    
    
    5,324Due and accrued dividends and expenses
    
    
    1,247
    
    
    
    1,246Investments available-for-sale
    
    
    1,233
    
    
    
    4,459State income tax credits
    
    
    138
    
    
    
    142Other
    
    
    251
    
    
    
    1,130Total gross deferred tax assets
    
    
    33,817
    
    
    
    35,937Valuation allowance
    
    
    
    
    
    
    (2,462
    )Total gross deferred tax assets net of valuation
allowance
    
    
    33,817
    
    
    
    33,475Deferred tax liabilities:Deferred policy acquisition costs, cost of customer
relationships acquired and intangible assets
    
    
    (42,088
    )
    
    
    (40,285
    )Other
    
    
    (1,139
    )
    
    
    (1,242
    )Total gross deferred tax liabilities
    
    
    (43,227
    )
    
    
    (41,527
    )Net deferred tax liability
    
    $
    (9,410
    )
    
    
    (8,052
    )
   December 31,2010
    
    
    2009(In thousands)Deferred federal and state income taxes:Balance January 1
    
    $
    (8,052
    )
    
    
    (3,951
    )Deferred tax benefit (expense)
    
    
    (4,947
    )
    
    
    (5,113
    )Change in valuation allowance
    
    
    2,462
    
    
    
    2,795Acquisition of ICIC
    
    
    
    
    
    
    241Charge to ONLIC goodwill
    
    
    
    
    
    
    (254
    )Investments available-for-sale
    
    
    1,112
    
    
    
    (1,762
    )Effects of unrealized gains on CCRA and DAC
    
    
    15
    
    
    
    (8
    )Balance December 31
    
    $
    (9,410
    )
    
    
    (8,052
    )
  86




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
     
     87




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Note 11:
    
    Other Comprehensive Income (Loss)
  Pre-tax
    
    
    Tax
    
    
    NetAmount
    
    
    Effect
    
    
    Amount(In thousands)Year ended December 31, 2010Unrealized gains (losses) on securities:Unrealized holding gains (losses) arising
during the period
    
    $
    4,891
    
    
    
    (1,712
    )
    
    
    3,179Reclassification adjustment for
(gains) losses included in net income
    
    
    (8,069
    )
    
    
    2,824
    
    
    
    (5,245
    )Effects on DAC and CCRA
    
    
    (43
    )
    
    
    15
    
    
    
    (28
    )Change in tax valuation allowance
    
    
    
    
    
    
    (1,858
    )
    
    
    (1,858
    )Other comprehensive income (loss)
    
    $
    (3,221
    )
    
    $
    (731
    )
    
    $
    (3,952
    )Year ended December 31, 2009Unrealized gains (losses) on securities:Unrealized holding gains (losses) arising
during the period
    
    $
    20,449
    
    
    
    (7,158
    )
    
    
    13,291Reclassification adjustment for
(gains) losses included in net income
    
    
    (7,701
    )
    
    
    2,695
    
    
    
    (5,006
    )Effects on DAC and CCRA
    
    
    24
    
    
    
    (8
    )
    
    
    16Change in tax valuation allowance
    
    
    
    
    
    
    2,701
    
    
    
    2,701Other comprehensive income (loss)
    
    $
    12,772
    
    
    $
    (1,770
    )
    
    $
    11,002Year ended December 31, 2008Unrealized gains (losses) on securities:Unrealized holding gains (losses) arising
during the period
    
    $
    (29,377
    )
    
    
    10,283
    
    
    
    (19,094
    )Reclassification adjustment for
(gains) losses included in net income
    
    
    23,826
    
    
    
    (8,340
    )
    
    
    15,486Other comprehensive income (loss)
    
    $
    (5,551
    )
    
    
    1,943
    
    
    
    (3,608
    )
 Note 12:
    
    Profit-Sharing Plan
  Note 13:
    
    Related Party Transactions
   88




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
    89




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Note 14:
    
    Quarterly Financial Information
 (Unaudited)
  Fourth
    
    
    Third
    
    
    Second
    
    
    First2010
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except per share amounts)Revenues
    
    $
    55,734
    
    
    
    45,455
    
    
    
    46,160
    
    
    
    43,832Benefits and expenses
    
    
    45,817
    
    
    
    42,476
    
    
    
    41,798
    
    
    
    41,460Federal income tax expense
    
    
    862
    
    
    
    1,313
    
    
    
    1,177
    
    
    
    767Net income
    
    
    9,055
    
    
    
    1,666
    
    
    
    3,185
    
    
    
    1,605Net income available to
common shareholders
    
    
    9,055
    
    
    
    1,666
    
    
    
    3,185
    
    
    
    1,605Basic and diluted earnings per share
of Class A common stock
    
    
    0.19
    
    
    
    0.03
    
    
    
    0.07
    
    
    
    0.03Basic and diluted earnings per share
of Class B common stock
    
    
    0.09
    
    
    
    0.02
    
    
    
    0.03
    
    
    
    0.02
 Fourth
    
    
    Third
    
    
    Second
    
    
    First2009
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except per share amounts)Revenues
    
    $
    54,049
    
    
    
    44,844
    
    
    
    45,429
    
    
    
    44,658Benefits and expenses
    
    
    45,918
    
    
    
    41,776
    
    
    
    41,808
    
    
    
    38,872Federal income tax expense as reported
    
    
    
    
    
    
    820
    
    
    
    905
    
    
    
    1,409Federal income tax expense as adjusted
    
    
    504
    
    
    
    1,033
    
    
    
    320
    
    
    
    1,409Net income as reported
    
    
    
    
    
    
    2,248
    
    
    
    2,716
    
    
    
    4,377Net income as adjusted
    
    
    7,627
    
    
    
    2,035
    
    
    
    3,301
    
    
    
    4,377Net income available to
common shareholders as reported
    
    
    
    
    
    
    2,091
    
    
    
    1,546
    
    
    
    3,199Net income available to
common shareholders as adjusted
    
    
    7,627
    
    
    
    1,878
    
    
    
    2,131
    
    
    
    3,199Basic and diluted earnings per share
of Class A common stock as reported
    
    
    
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.07Basic and diluted earnings per share
of Class A common stock as adjusted
    
    
    0.16
    
    
    
    0.04
    
    
    
    0.04
    
    
    
    0.07Basic and diluted earnings per share
of Class B common stock as reported
    
    
    
    
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.03Basic and diluted earnings per share
of Class B common stock as adjusted
    
    
    0.08
    
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.03
  Note 15:
    
    Subsequent Events
   90




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Financial Schedules
 
 Schedule II
Condensed Financial Information of Registrant
CITIZENS, INC. (Parent Company)
Balance Sheet
 At December 31,2010
    
    
    2009(In thousands)AssetsInvestment in subsidiaries (1)
    
    $
    180,015
    
    
    
    185,775Fixed maturities available-for-sale, at fair value
    
    
    18,453
    
    
    
    1,715Mortgage loans on real estate
    
    
    492
    
    
    
    500Real estate and other long-term investments
    
    
    6,513
    
    
    
    6,360Cash
    
    
    23,508
    
    
    
    21,202Accrued investment income
    
    
    174
    
    
    
    10Accounts receivable from subsidiaries (1)
    
    
    2,436
    
    
    
    3,988Other assets
    
    
    865
    
    
    
    734Total assets
    
    $
    232,456
    
    
    
    220,284Liabilities and Stockholders EquityLiabilities:Accrued expense and other liabilities
    
    $
    3,235
    
    
    
    2,390Liabilities for options and warrants
    
    
    1,587
    
    
    
    1,819Total liabilities
    
    
    4,822
    
    
    
    4,209Stockholders equity:Common stock:Class A
    
    
    256,703
    
    
    
    256,703Class B
    
    
    3,184
    
    
    
    3,184Retained deficit
    
    
    (22,581
    )
    
    
    (38,092
    )Unrealized investment gains (losses) on securities held by
parent and subsidiaries, net of tax
    
    
    1,339
    
    
    
    5,291Treasury stock
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    227,634
    
    
    
    216,075Total liabilities and stockholders equity
    
    $
    232,456
    
    
    
    220,284
 (1)
    
    Eliminated in consolidation.   91




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Financial Schedules
 Schedule II, Continued
Condensed Financial Information of Registrant
CITIZENS, INC. (Parent Company)
Statements of Operations
 Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Revenues:Management service fees (1)
    
    $
    29,153
    
    
    
    29,885
    
    
    
    29,764Investment income
    
    
    423
    
    
    
    164
    
    
    
    808Decrease (increase) in fair value of warrants
    
    
    232
    
    
    
    3,154
    
    
    
    (2,662
    )Other
    
    
    
    
    
    
    2
    
    
    
    11Realized gains (losses)
    
    
    (53
    )
    
    
    40
    
    
    
    18Total revenues
    
    
    29,755
    
    
    
    33,245
    
    
    
    27,939Expenses:General
    
    
    26,529
    
    
    
    27,907
    
    
    
    27,791Taxes
    
    
    1,608
    
    
    
    1,363
    
    
    
    1,186Total expenses
    
    
    28,137
    
    
    
    29,270
    
    
    
    28,977Income (loss) before equity in income (loss)
of consolidated subsidiaries
    
    
    1,618
    
    
    
    3,975
    
    
    
    (1,038
    )Equity in income (loss) of consolidated subsidiaries
    
    
    13,893
    
    
    
    13,365
    
    
    
    (14,669
    )Net income (loss)
    
    $
    15,511
    
    
    
    17,340
    
    
    
    (15,707
    )
 (1)
    
    Eliminated in consolidation.   92




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Financial Schedules
 Schedule II, Continued
Condensed Financial Information of Registrant
CITIZENS, INC. (Parent Company)
Statements of Cash Flows
 Years ended December 31,2010
    
    
    2009
    
    
    2008(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    15,511
    
    
    
    17,340
    
    
    
    (15,707
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Realized losses (gains)
    
    
    53
    
    
    
    (40
    )
    
    
    (18
    )Equity in net (income) loss of consolidated subsidiaries
    
    
    (13,893
    )
    
    
    (13,365
    )
    
    
    14,669Increase (decrease) in fair value of options and
warrants
    
    
    (232
    )
    
    
    (3,154
    )
    
    
    2,662Accrued expenses and other liabilities
    
    
    845
    
    
    
    (204
    )
    
    
    1,006Amortization of discounts on short-term investments
    
    
    
    
    
    
    
    
    
    
    (428
    )Depreciation
    
    
    227
    
    
    
    252
    
    
    
    126Change in accrued investment income
    
    
    (164
    )
    
    
    48
    
    
    
    21Increase (decrease) in receivable from subsidiaries
    
    
    1,552
    
    
    
    758
    
    
    
    (2,457
    )Other
    
    
    (199
    )
    
    
    868
    
    
    
    (1,379
    )Net cash provided by (used in) operating activities
    
    
    3,700
    
    
    
    2,503
    
    
    
    (1,505
    )Cash flows from investing activities:Purchase of fixed maturities, available-for-sale
    
    
    (18,254
    )
    
    
    (3,000
    )
    
    
    (1,000
    )Maturities of fixed maturities, available-for-sale
    
    
    1,750
    
    
    
    5,550
    
    
    
    2,700Sale of real estate and other long-term investments
    
    
    61
    
    
    
    212
    
    
    
    58Purchase of other long-term investments
and property and equipment
    
    
    (437
    )
    
    
    (2,021
    )
    
    
    (806
    )Maturity of short-term investments
    
    
    
    
    
    
    2,250
    
    
    
    26,000Purchase of short-term investments
    
    
    
    
    
    
    
    
    
    
    (10,173
    )Capital contribution to subsidiary
    
    
    
    
    
    
    (1,000
    )
    
    
    Cash paid for acquisition, net
    
    
    
    
    
    
    
    
    
    
    (8,242
    )Net cash provided by (used by) investing activities
    
    
    (16,880
    )
    
    
    1,991
    
    
    
    8,537Cash flows from financing activities:Dividend from subsidiary
    
    
    19,800
    
    
    
    
    
    
    
    Warrants exercised
    
    
    
    
    
    
    70
    
    
    
    125Purchase of the Companys stock from affiliates
    
    
    (4,314
    )
    
    
    
    
    
    
    Series A-1 preferred stock capital contributions
    
    
    
    
    
    
    
    
    
    
    9,375Net cash provided by financing activities
    
    
    15,486
    
    
    
    70
    
    
    
    9,500Net increase in cash
    
    
    2,306
    
    
    
    4,564
    
    
    
    16,532Cash at beginning of year
    
    
    21,202
    
    
    
    16,638
    
    
    
    106Cash at end of year
    
    $
    23,508
    
    
    
    21,202
    
    
    
    16,638
   93




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Financial Schedules
 
 Schedule III
Supplementary Insurance Information
 At December 31,2010
    
    
    2009(In thousands)Deferred policy acquisition cost:Life Insurance
    
    $
    104,433
    
    
    
    99,220Home Service Insurance
    
    
    21,251
    
    
    
    16,350Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated deferred policy acquisition costs:
    
    $
    125,684
    
    
    
    115,570Future policy benefit reserves and policy
claims payable:Life Insurance
    
    $
    462,354
    
    
    
    419,766Home Service Insurance
    
    
    233,332
    
    
    
    227,095Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated future policy benefit reserves
and policy claims payable
    
    $
    695,686
    
    
    
    646,861Unearned premiums:Life Insurance
    
    $
    1,373
    
    
    
    1,270Home Service Insurance
    
    
    193
    
    
    
    179Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated unearned premiums
    
    $
    1,566
    
    
    
    1,449Other policy claims and benefits payable:Life Insurance
    
    $
    34,999
    
    
    
    27,942Home Service Insurance
    
    
    4,799
    
    
    
    4,708Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated other policy claims and benefits
payable
    
    $
    39,798
    
    
    
    32,650
   94




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Financial Schedules
  
 Schedule IV
Reinsurance
 % ofCeded to
    
    
    Assumed
    
    
    
    
    
    
    AmountDirect
    
    
    Other
    
    
    From Other
    
    
    
    
    
    
    Assumed toAmount
    
    
    Companies
    
    
    Companies
    
    
    Net Amount
    
    
    Net(In thousands)Year ended December 31, 2010Life insurance in force
    
    $
    4,451,979
    
    
    
    381,076
    
    
    
    1,044,759
    
    
    
    5,115,662
    
    
    
    20.4
    %Premiums:Life insurance
    
    
    146,331
    
    
    
    2,219
    
    
    
    1,553
    
    
    
    145,665Accident and health insurance
    
    
    6,847
    
    
    
    5,270
    
    
    
    
    
    
    
    1,577Property insurance
    
    
    5,941
    
    
    
    1,131
    
    
    
    
    
    
    
    4,810Total premiums
    
    $
    159,119
    
    
    
    8,620
    
    
    
    1,553
    
    
    
    152,052
    
    
    
    1.0
    %Year ended December 31, 2009Life insurance in force
    
    $
    4,432,017
    
    
    
    362,891
    
    
    
    927,917
    
    
    
    4,997,043
    
    
    
    18.6
    %Premiums:Life insurance
    
    
    142,098
    
    
    
    2,513
    
    
    
    1,416
    
    
    
    141,001Accident and health insurance
    
    
    7,815
    
    
    
    6,284
    
    
    
    
    
    
    
    1,531Property insurance
    
    
    5,814
    
    
    
    1,066
    
    
    
    
    
    
    
    4,748Total premiums
    
    $
    155,727
    
    
    
    9,863
    
    
    
    1,416
    
    
    
    147,280
    
    
    
    1.0
    %Year ended December 31, 2008Life insurance in force
    
    $
    4,322,060
    
    
    
    302,253
    
    
    
    647,041
    
    
    
    4,666,848
    
    
    
    13.9
    %Premiums:Life insurance
    
    
    136,016
    
    
    
    2,522
    
    
    
    1,459
    
    
    
    134,953Accident and health insurance
    
    
    9,095
    
    
    
    7,515
    
    
    
    
    
    
    
    1,580Property insurance
    
    
    5,966
    
    
    
    1,202
    
    
    
    
    
    
    
    4,764Total premiums
    
    $
    151,077
    
    
    
    11,239
    
    
    
    1,459
    
    
    
    141,297
    
    
    
    1.0
    %
   95




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##### Table of Contents



SIGNATURES
  CITIZENS, INC.Date:  March 11, 2011
    By:
    /s/ Harold E. RileyHarold E. RileyChairman and Chief Executive OfficerBy:
    /s/ Kay E. OsbournKay E. OsbournExecutive Vice President, Chief Financial Officer,
Principal Accounting Officer and Treasurer    /s/ Harold E. Riley
    
    /s/ Rick D. RileyHarold E. Riley, Chairman of the Board and
Chief Executive Officer
    
    Rick D. Riley, Vice Chairman, President and
Chief Corporate Officer/s/ E. Dean Gage
    
    /s/ Robert B. Sloan, Jr.Dr. E. Dean Gage, Director
    
    Dr. Robert B. Sloan, Jr., Director/s/ Terry S. Maness
    
    /s/ Grant G. TeaffDr. Terry S. Maness, Director
    
    Grant G. Teaff, Director/s/ Dottie S. Riley
    
    /s/ Timothy T. TimmermanDottie S. Riley, Director
    
    Timothy T. Timmerman, Director/s/ Steven F. Shelton

Steven F. Shelton, Director
  96




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##### Table of Contents



EXHIBITS
 Exhibit Number
    
    The following exhibits are filed herewith:3.1
    
    
    Restated and Amended Articles of Incorporation (a)3.2
    
    
    Bylaws (b)4.1
    
    
    Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (c)10.1
    
    
    Self-Administered Automatic Reinsurance Agreement  Citizens Insurance Company of America and
Riunione Adriatica di Sicurta, S.p.A. (d)10.2
    
    
    Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life
Insurance Company and Citizens Insurance Company of America, as amended (e)10.3
    
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Citizens Insurance Company of America and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Citizens Insurance Company of America, Texas International Life Insurance Company and
Wells Fargo Bank, N.A. (f)10.4
    
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Combined Underwriters Life Insurance Company and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Combined Underwriters Life Insurance Company, Texas International Life Insurance Company
and Wells Fargo Bank, N.A. (g)10.5
    (a)
    
    Securities Purchase Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5
    (b)
    
    Registration Rights Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5
    (c)
    
    Unit Warrant dated July 12, 2004, to Mainfield Enterprises, Inc. (h)10.5
    (d)
    
    Unit Warrant dated July 12, 2004, to Steelhead Investments Ltd. (h)10.5
    (e)
    
    Unit Warrant dated July 12, 2004, to Portside Growth and Opportunity Fund (h)10.5
    (f)
    
    Unit Warrant dated July 12, 2004, to Smithfield Fiduciary LLC (h)10.5
    (g)
    
    Warrant to Purchase Class A Common Stock to Mainfield Enterprises, Inc. (h)10.5
    (h)
    
    Warrant to Purchase Class A Common Stock to Steelhead Investments Ltd. (h)10.5
    (i)
    
    Warrant to Purchase Class A Common Stock to Portside Growth and Opportunity Fund (h)10.5
    (j)
    
    Warrant to Purchase Class A Common Stock to Smithfield Fiduciary LLC (h)10.5
    (k)
    
    Subordination Agreement among Regions Bank, the Purchasers and Citizens, Inc. dated July
12, 2004 (h)10.5
    (l)
    
    Non-Exclusive Finders Agreement dated September 29, 2003, between Citizens, Inc. and the
Shemano Group, Inc. (h)
  97




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##### Table of Contents



Exhibit Number
    
    The following exhibits are filed herewith: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*23
    
    
    Consent of Independent Registered Public Accounting Firm  Ernst & Young LLP*24
    
    
    Power of Attorney (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*99.1
    
    
    New Release reporting fourth quarter results issued on March 10, 2011
(furnished herewith).
 
 *
    
    Filed herewith.(a)
    
    Filed on March 15, 2004 with the Registrants Annual Report on Form 10-K for the
Year Ended December 31, 2003 as Exhibit 3.1, and incorporated herein by reference.(b)
    
    Filed on March 31, 1999 with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 1998, as Exhibit 3.2, and incorporated herein by reference.(c)
    
    Filed on July 15, 2004, with the Registrants Current Report on Form 8-K as Exhibit 4.1, and
incorporated herein by reference.(d)
    
    Filed as Exhibit 10.8 with the Registration Statement on Form S-4, SEC File No. 333-16163, on
November 14, 1996 and incorporated herein by reference.(e)
    
    Filed on April 9, 1997 as Exhibit 10.9 with the Registrants Annual Report on Form 10-K for
the Year Ended December 31, 1996, Amendment No. 1, and incorporated herein by reference.(f)
    
    Filed on March 22, 2004 as Exhibit 10.8 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(g)
    
    Filed on March 22, 2004 as Exhibit 10.9 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(h)
    
    Filed on July 15, 2004 as part of Exhibit 10.12 with the Registrants Current Report on Form
8-K, and incorporated herein by reference.(i)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(m), and incorporated herein by reference.(j)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(n), and incorporated herein by reference.(k)
    
    Filed on November 6, 2009, with the Registrants Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2009, as Exhibit 10.8(k), and incorporated herein by reference.(l)
    
    Filed on November 6, 2009, with the Registrants Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2009, as Exhibit 10.9(l), and incorporated herein by reference.(m)
    
    The Power of Attorney is incorporated in the signature page enclosed herein.  98