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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 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 Yes
o No
 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
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    19Item 2. Properties
    
    
    19Item 3. Legal Proceedings
    
    
    19Item 4. (Reserved)
    
    
    20PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchase of Equity Securities
    
    
    20Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    22Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 8. Financial Statements and Supplementary Data
    
    
    39Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    39Item 9A. Controls and Procedures
    
    
    39Item 9B. Other Information
    
    
    41PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    41Item 11. Executive Compensation
    
    
    41Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    41Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    41Item 14. Principal Accounting Fees and Services
    
    
    41PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    41Signatures
    
    
    48Exhibit 21Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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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, particularly in light of
the severe economic conditions and the severe stress experienced by the global financial
markets that began in the second half of 2008 and continued into 2009;
 
    
    Changes in consumer behavior, which may affect the Companys ability to sell its
products and retain business;
 
    
    The timely development of and acceptance of new products of the Company and perceived
overall value of these products and services by existing potential customers;
 
    
    Fluctuations in experience regarding current mortality, morbidity, persistency and
interest rates relative to expected amounts used in pricing the Companys products;
 
    
    Results of litigation we may be involved in;
 
    
    Changes in assumptions related to deferred acquisition costs and the value of any
businesses we may acquire;
 
    
    Regulatory, accounting or tax changes that may affect the cost of, or the demand for,
the Companys products or services;
 
    
    Our concentration of business from persons residing in Latin America and the Pacific Rim;
 
    
    Our success at managing risks involved in the foregoing;
 
    
    Changes in tax laws;
 
    
    Effects of acquisitions and restructuring, including possible difficulties in
integrating and realizing the projected results of acquisitions;
 
    
    Changes in statutory or U.S. GAAP accounting principles, policies or practices; and
 
    
    Therisk factorsdisclosed herein, as well as other risk factors disclosed previously
and from time to time in our filings with the Securities and Exchange Commission.
 Such forward-looking statements speak only as of the date on which such statements are made, and
the Company undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made to reflect the occurrence of
unanticipated events.
 We make available, free of charge, through our Internet website (http://www.citizensinc.com), our
Annual Report on Form 10-K , Quarterly Reports on Form 10-Q , Current Reports on Form 8-K , Section 16
reports filed by officers and directors, news releases, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after we electronically file such reports with, or furnish
such reports to, the Securities and Exchange Commission. We are not including any of the
information contained on our website as part of, or incorporating it by reference into, this 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 in the midwest and
the southern United States through independent marketing consultants; and
 
    
    final expense and limited liability property policies to middle and lower income
households in Louisiana, Mississippi and Arkansas through employee and independent agents
in our home service distribution channel.
    Our Operating Segments
  
    
    Life Insurance;
 
    
    Home Service Insurance; and
 
    
    Other Non-insurance Enterprises.
  Life Insurance
   3




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 International
  
    
    larger face amount policies typically issued when compared to our U.S. operations, which
results in lower underwriting and administrative costs per policy;
 
    
    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;
 
    
    higher persistency than our U.S. policies;
 
    
    good or better mortality rates than those in the United States, because our foreign
insureds are high net worth individuals in the top income brackets in their respective
countries.
    Year ended December 31,Country
    
    2009
    
    
    2008
    
    
    2007(In thousands)Colombia
    
    $
    23,755
    
    
    
    23.8
    %
    
    $
    19,473
    
    
    
    20.6
    %
    
    $
    24,352
    
    
    
    26.2
    %Taiwan
    
    
    14,316
    
    
    
    14.4
    
    
    
    13,793
    
    
    
    14.6
    
    
    
    12,567
    
    
    
    13.5Venezuela
    
    
    14,209
    
    
    
    14.2
    
    
    
    12,594
    
    
    
    13.4
    
    
    
    11,631
    
    
    
    12.5Ecuador
    
    
    10,922
    
    
    
    11.0
    
    
    
    10,889
    
    
    
    11.5
    
    
    
    9,641
    
    
    
    10.4Argentina
    
    
    8,669
    
    
    
    8.7
    
    
    
    9,580
    
    
    
    10.2
    
    
    
    9,099
    
    
    
    9.8Other Non-U.S.
    
    
    27,843
    
    
    
    27.9
    
    
    
    27,988
    
    
    
    29.7
    
    
    
    25,525
    
    
    
    27.6Total
    
    $
    99,714
    
    
    
    100.0
    %
    
    $
    94,317
    
    
    
    100.0
    %
    
    $
    92,815
    
    
    
    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
   5




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
   Year Ended December 31,State
    
    2009
    
    
    2008
    
    
    2007(In thousands)Texas
    
    $
    6,501
    
    
    
    37.3
    %
    
    $
    7,306
    
    
    
    41.6
    %
    
    $
    7,481
    
    
    
    39.6
    %Indiana
    
    
    2,125
    
    
    
    12.1
    
    
    
    99
    
    
    
    0.6
    
    
    
    100
    
    
    
    0.5Missouri
    
    
    1,877
    
    
    
    10.7
    
    
    
    2,073
    
    
    
    11.8
    
    
    
    2,309
    
    
    
    12.2Kentucky
    
    
    1,525
    
    
    
    8.7
    
    
    
    1,838
    
    
    
    10.5
    
    
    
    2,224
    
    
    
    11.8Oklahoma
    
    
    1,475
    
    
    
    8.4
    
    
    
    1,920
    
    
    
    10.9
    
    
    
    2,136
    
    
    
    11.3Other States
    
    
    3,992
    
    
    
    22.8
    
    
    
    4,316
    
    
    
    24.6
    
    
    
    4,535
    
    
    
    24.6Total
    
    $
    17,495
    
    
    
    100.0
    %
    
    $
    17,552
    
    
    
    100.0
    %
    
    $
    18,785
    
    
    
    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.
   6




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Domestic Competition
   Home Service Insurance
  Home Service Products
  Home Service 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
    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 the possible application of foreign insurance and securities laws and regulations to our
business, as well as risks from political and economic instability and currency or asset transfer
restrictions.
    9




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
     The United States and global financial markets experienced extreme volatility and disruption in
2008 and 2009. We continue to be exposed to significant financial and capital markets risk,
including changes in equity prices, which may have a material adverse effect on our results of
operations, financial condition and liquidity.
    10




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Changes in market interest rates may significantly affect our profitability.
   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.
   Unexpected losses in future reporting periods may require us to adjust the valuation allowance
against our deferred tax assets.
    11




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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.
    12




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 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.
 Citizens Insurance Company of America, Citizens, Inc., and Harold E.
Riley v. Fernando Hakim Daccach
 The State of
Louisiana v. AAA Insurance Road Home Litigation Road Home Litigation
  Reinsurers with which we do business could increase their premium rates and may not honor their
obligations, leaving us liable for the reinsured coverage.
    13




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  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.
    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.
   14




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
   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.
  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.
      15




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Changes in U.S. regulation may adversely affect our results of operations and financial condition
and limit our prospective growth.
  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.
   16




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 General economic, financial market and political conditions may materially, adversely affect our
results of operations and financial condition.
   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.
    17




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 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.
  Risks Relating to Our Class A Common Stock
 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 will not control us for the foreseeable future, will have a limited
ability to influence our business policies and corporate actions and will not by themselves be able
to elect any 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.
   18




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 We have never paid any cash dividends on our Class A common stock and do not anticipate doing so in
the foreseeable future.
  There are a substantial number of shares of our 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.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
  
 Item 3. LEGAL PROCEEDINGS
 Citizens Insurance Company of America, Citizens, Inc., Harold E. Riley
and Mark A. Oliver, Petitioners v. Fernando Hakim Daccach Respondent
 The State of
Louisiana v. AAA Insurance Road Home Litigation Road Home Litigation
  19




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  
    
    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)
 
 PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASE OF EQUITY SECURITIES
   2009
    
    
    2008Quarter Ended
    
    High
    
    
    Low
    
    
    High
    
    
    LowMarch 31
    
    $
    9.65
    
    
    
    6.32
    
    
    $
    6.95
    
    
    
    5.14June 30
    
    
    7.98
    
    
    
    6.08
    
    
    
    7.96
    
    
    
    6.02September 30
    
    
    7.20
    
    
    
    5.59
    
    
    
    9.15
    
    
    
    5.79December 31
    
    
    6.83
    
    
    
    5.80
    
    
    
    9.70
    
    
    
    6.99
   Securities Authorized for Issuance Under Equity Compensation Plans
   20




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Item 6. SELECTED FINANCIAL DATA
  Year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(In thousands, except per share data)Total Revenues
    
    $
    188,980
    
    
    
    146,673
    
    
    
    169,637
    
    
    
    154,189
    
    
    
    139,024Net Income (Loss)
    
    
    17,340
    
    
    
    (15,707
    )
    
    
    16,557
    
    
    
    8,677
    
    
    
    7,302Basic and Diluted Earnings (Loss)
Per Class A Share
    
    
    0.31
    
    
    
    (0.42
    )
    
    
    0.35
    
    
    
    0.16
    
    
    
    0.13Total Assets
    
    
    927,326
    
    
    
    832,276
    
    
    
    787,909
    
    
    
    711,184
    
    
    
    661,889Total Liabilities
    
    
    711,251
    
    
    
    653,022
    
    
    
    597,532
    
    
    
    558,690
    
    
    
    513,380Total Stockholders Equity
    
    
    216,075
    
    
    
    171,541
    
    
    
    176,157
    
    
    
    139,611
    
    
    
    136,963Book Value Per Share
    
    
    4.35
    
    
    
    3.68
    
    
    
    4.00
    
    
    
    3.38
    
    
    
    3.33
   21




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  
    
    U.S. Dollar-denominated ordinary whole life insurance and endowment policies
predominantly to high net worth, high income foreign residents, located principally in
Latin America and the Pacific Rim, through approximately 2,100 independent marketing
consultants;
 
    
    ordinary whole life insurance policies to middle income households in the midwest and
the southern United States through approximately 340 independent marketing consultants; and
 
    
    final expense and limited liability property policies to middle and lower income
households in Louisiana, Mississippi and Arkansas through approximately 625 employee and
independent agents in our home service distribution segment.
 Life Insurance.
  Home Service Insurance.
    
    
    An increasing percentage of the world population reaches retirement age, we believe we
will benefit from increased demand for living products rather than death products, as aging
baby boomers will require cash accumulation to provide expenses to meet their lifetime
needs. Our ordinary life products are designed to accumulate cash values to provide for
living expenses in a policy owners later years, while continuously providing a death
benefit.
  22




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
    
    The current worldwide recession and contraction of credit availability has resulted in
adverse effects for the life insurance industry, including increased surrender of life
insurance policies in force, decreased new life insurance policy sales and increased
competition for new life insurance policy sales. Our operations in 2009 reflected these
adverse developments, and are discusssed further below.
 
    
    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 recession of 2008-2009, 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.
 Recent Acquisitions
  Consolidated Results of Operations
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Revenues:Premiums:Life insurance
    
    $
    141,001
    
    
    
    134,953
    
    
    
    130,265Accident and health insurance
    
    
    1,531
    
    
    
    1,580
    
    
    
    1,558Property insurance
    
    
    4,748
    
    
    
    4,764
    
    
    
    4,925Net investment income
    
    
    29,602
    
    
    
    30,478
    
    
    
    30,743Realized gains (losses), net
    
    
    8,040
    
    
    
    (23,812
    )
    
    
    (94
    )Decrease (increase) in fair value of warrants
    
    
    3,154
    
    
    
    (2,662
    )
    
    
    828Other income
    
    
    904
    
    
    
    1,372
    
    
    
    1,412Total revenues
    
    
    188,980
    
    
    
    146,673
    
    
    
    169,637Exclude increase (decrease) in fair value
of warrants
    
    
    (3,154
    )
    
    
    2,662
    
    
    
    828Total revenues excluding fair value adjustments
of warrants outstanding
    
    $
    185,826
    
    
    
    149,335
    
    
    
    170,465
 Premium Income
  23




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Net Investment Income
 Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Gross investment income:Fixed maturity securities
    
    $
    25,921
    
    
    
    27,536
    
    
    
    26,925Equity securities
    
    
    1,056
    
    
    
    1,027
    
    
    
    2,171Mortgage loans
    
    
    50
    
    
    
    28
    
    
    
    33Policy loans
    
    
    2,444
    
    
    
    2,105
    
    
    
    1,919Long-term investments
    
    
    465
    
    
    
    39
    
    
    
    (47
    )Other
    
    
    507
    
    
    
    357
    
    
    
    191Total investment income
    
    
    30,443
    
    
    
    31,092
    
    
    
    31,192Less investment expenses
    
    
    (841
    )
    
    
    (614
    )
    
    
    (449
    )Net investment income
    
    $
    29,602
    
    
    
    30,478
    
    
    
    30,743
 Realized Gains (Losses) on Investments
 Decrease (Increase) in Fair Value of Warrants
  24




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    $
    59,988
    
    
    
    56,253
    
    
    
    50,571Increase in future policy benefit reserves
    
    
    40,790
    
    
    
    37,117
    
    
    
    36,420Policyholders dividends
    
    
    6,680
    
    
    
    6,865
    
    
    
    6,401Total insurance benefits paid or provided
    
    
    107,458
    
    
    
    100,235
    
    
    
    93,392Commissions
    
    
    35,536
    
    
    
    35,984
    
    
    
    35,641Other underwriting, acquisition and
insurance expense
    
    
    28,340
    
    
    
    28,611
    
    
    
    27,583Capitalization of deferred policy acquisition costs
    
    
    (23,656
    )
    
    
    (24,109
    )
    
    
    (26,210
    )Amortization of deferred policy acquisition costs
    
    
    17,202
    
    
    
    15,650
    
    
    
    12,530Amortization of cost of customer relationships
acquired and other intangibles
    
    
    3,494
    
    
    
    2,897
    
    
    
    3,203Total benefits and expenses
    
    $
    168,374
    
    
    
    159,268
    
    
    
    146,139
 Claims and Surrenders
 Years ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Death claims
    
    $
    22,494
    
    
    
    22,529
    
    
    
    20,720Surrender expenses
    
    
    19,666
    
    
    
    15,222
    
    
    
    13,832Endowment benefits
    
    
    14,079
    
    
    
    13,814
    
    
    
    12,835Property claims
    
    
    1,590
    
    
    
    2,657
    
    
    
    1,090Accident and health benefits
    
    
    437
    
    
    
    427
    
    
    
    311Other policy benefits
    
    
    1,722
    
    
    
    1,604
    
    
    
    1,783Total claims and
surrenders
    
    $
    59,988
    
    
    
    56,253
    
    
    
    50,571
     25




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Reserves
 Policyholder Dividends
 Commissions
 Underwriting, Acquisition and Insurance Expense
 Deferred Policy Acquisition Costs
 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 31:2009
    
    $
    10,472
    
    
    
    9,245
    
    
    
    889
    
    
    
    20,6062008
    
    
    712
    
    
    
    (8,955
    )
    
    
    (4,352
    )
    
    
    (12,595
    )2007
    
    
    13,145
    
    
    
    12,729
    
    
    
    (2,376
    )
    
    
    23,498
  26




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Life Insurance
  For the Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Revenue:Premiums
    
    $
    105,997
    
    
    
    102,030
    
    
    
    97,292Net investment income
    
    
    16,667
    
    
    
    17,015
    
    
    
    16,891Realized gains (losses), net
    
    
    1,100
    
    
    
    (13,882
    )
    
    
    3Other income
    
    
    340
    
    
    
    330
    
    
    
    660Total revenue
    
    
    124,104
    
    
    
    105,493
    
    
    
    114,846Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    41,277
    
    
    
    36,241
    
    
    
    34,305Increase in future policy benefit reserves
    
    
    36,043
    
    
    
    34,246
    
    
    
    34,160Policyholders dividends
    
    
    6,594
    
    
    
    6,714
    
    
    
    6,401Total insurance benefits paid or provided
    
    
    83,914
    
    
    
    77,201
    
    
    
    74,866Commissions
    
    
    21,146
    
    
    
    21,589
    
    
    
    22,144Other underwriting, acquisition and insurance
expenses
    
    
    10,167
    
    
    
    10,866
    
    
    
    13,294Capitalization of deferred policy acquisition costs
    
    
    (17,871
    )
    
    
    (19,177
    )
    
    
    (20,653
    )Amortization of deferred policy acquisition costs
    
    
    14,757
    
    
    
    13,331
    
    
    
    10,874Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,519
    
    
    
    971
    
    
    
    1,176Total benefits and expenses
    
    
    113,632
    
    
    
    104,781
    
    
    
    101,701Income before Federal income tax
    
    $
    10,472
    
    
    
    712
    
    
    
    13,145
 Premiums
  For the Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Premiums:First year
    
    $
    16,294
    
    
    
    18,020
    
    
    
    20,104Renewal
    
    
    89,703
    
    
    
    84,010
    
    
    
    77,188Total premium
    
    $
    105,997
    
    
    
    102,030
    
    
    
    97,292
  27




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Net Investment Income
 Realized Gains (Losses), Net
 For the Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Death claims
    
    $
    7,986
    
    
    
    7,147
    
    
    
    7,254Surrender expenses
    
    
    17,672
    
    
    
    13,770
    
    
    
    12,250Endowment benefits
    
    
    14,051
    
    
    
    13,877
    
    
    
    12,813Accident and health benefits
    
    
    288
    
    
    
    290
    
    
    
    193Other policy benefits
    
    
    1,280
    
    
    
    1,157
    
    
    
    1,795Total claims and surrenders
    
    $
    41,277
    
    
    $
    36,241
    
    
    $
    34,305
 Claims and Surrenders
   Commissions
 Other Underwriting, Acquisition and Insurance Expenses
 Deferred Policy Acquisition Costs (DAC).
 Amortization of Cost of Customer Relationships Acquired (COIA)
  28




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Home Service Insurance
  For the Years Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Revenue:Premiums
    
    $
    41,283
    
    
    
    39,267
    
    
    
    39,456Net investment income
    
    
    12,680
    
    
    
    12,654
    
    
    
    13,502Realized gains (losses), net
    
    
    6,562
    
    
    
    (9,948
    )
    
    
    (85
    )Other income
    
    
    101
    
    
    
    273
    
    
    
    6Total revenue
    
    
    60,626
    
    
    
    42,246
    
    
    
    52,879Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    18,711
    
    
    
    20,012
    
    
    
    16,266Increase in future policy benefit reserves
    
    
    4,747
    
    
    
    2,871
    
    
    
    2,260Policyholders dividends
    
    
    86
    
    
    
    151
    
    
    
    Total insurance benefits paid or provided
    
    
    23,544
    
    
    
    23,034
    
    
    
    18,526Commissions
    
    
    14,390
    
    
    
    14,395
    
    
    
    13,497Other underwriting, acquisition and insurance
expenses
    
    
    14,812
    
    
    
    14,459
    
    
    
    10,001Capitalization of deferred policy acquisition costs
    
    
    (5,785
    )
    
    
    (4,932
    )
    
    
    (5,557
    )Amortization of deferred policy acquisition costs
    
    
    2,445
    
    
    
    2,319
    
    
    
    1,656Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,975
    
    
    
    1,926
    
    
    
    2,027Total benefits and expenses
    
    
    51,381
    
    
    
    51,201
    
    
    
    40,150Income (loss) before Federal income tax
    
    $
    9,245
    
    
    
    (8,955
    )
    
    
    12,729
 Premiums
 Net Investment Income
 Realized Gains (Losses), Net
  29




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Claims and Surrenders
 For the Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Death claims
    
    $
    14,508
    
    
    
    15,382
    
    
    
    13,466Surrender expenses
    
    
    1,994
    
    
    
    1,452
    
    
    
    1,582Endowment benefits
    
    
    28
    
    
    
    (63
    )
    
    
    22Property claims
    
    
    1,590
    
    
    
    2,657
    
    
    
    1,090Accident and health benefits
    
    
    149
    
    
    
    137
    
    
    
    118Other policy benefits
    
    
    442
    
    
    
    447
    
    
    
    (12
    )Total claims and surrenders
    
    $
    18,711
    
    
    $
    20,012
    
    
    $
    16,266
 Increase in Future Policy Benefit Reserves
 Commissions
 Other Underwriting, Acquisition and Insurance Expenses
 Deferred Policy Acquisition Costs (DAC)
 Other Non-Insurance Enterprises
  Investments
   30




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  December 31, 2009
    
    
    December 31, 2008Percent 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
    
    $
    399,626
    
    
    
    55.6
    %
    
    $
    295,481
    
    
    
    46.6
    %Mortgage-backed (1)
    
    
    19,452
    
    
    
    2.7
    
    
    
    51,907
    
    
    
    8.2Corporate
    
    
    116,098
    
    
    
    16.1
    
    
    
    79,528
    
    
    
    12.5Municipal bonds
    
    
    57,192
    
    
    
    7.9
    
    
    
    58,105
    
    
    
    9.2Foreign governments
    
    
    120
    
    
    
    
    
    
    
    134
    
    
    
    Total fixed maturity securities
    
    
    592,488
    
    
    
    82.3
    
    
    
    485,155
    
    
    
    76.5Cash and cash equivalents
    
    
    48,625
    
    
    
    6.8
    
    
    
    63,792
    
    
    
    10.1Short-term investments
    
    
    2,510
    
    
    
    0.3
    
    
    
    2,250
    
    
    
    0.4Other investments:Policy loans
    
    
    32,096
    
    
    
    4.5
    
    
    
    28,955
    
    
    
    4.6Equity securities
    
    
    33,477
    
    
    
    4.6
    
    
    
    43,000
    
    
    
    6.8Mortgage loans
    
    
    1,533
    
    
    
    0.2
    
    
    
    339
    
    
    
    0.1Real estate and other long-term investments
    
    
    9,216
    
    
    
    1.3
    
    
    
    9,553
    
    
    
    1.5Total cash, cash equivalents and investments
    
    $
    719,945
    
    
    
    100.0
    %
    
    $
    633,044
    
    
    
    100.0
    %
 (1)
    
    Includes $16.2 million and $46.4 of U.S. Government agencies and government-sponsored enterprises in 2009 and 2008, respectively.   December 31, 2009
    
    
    December 31, 2008Carrying Value
    
    
    %
    
    
    Carrying Value
    
    
    %(In thousands)
    
    
    
    
    
    (In thousands)AAA and U.S. Government
    
    $
    442,160
    
    
    
    74.6
    %
    
    $
    379,547
    
    
    
    78.2
    %AA
    
    
    26,613
    
    
    
    4.5
    
    
    
    37,263
    
    
    
    7.7A
    
    
    69,934
    
    
    
    11.8
    
    
    
    56,043
    
    
    
    11.6BBB
    
    
    48,311
    
    
    
    8.2
    
    
    
    7,217
    
    
    
    1.5BB and other
    
    
    5,470
    
    
    
    0.9
    
    
    
    5,085
    
    
    
    1.0Totals
    
    $
    592,488
    
    
    
    100.0
    %
    
    $
    485,155
    
    
    
    100.0
    %
   31




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Valuation of Investments in Fixed Maturity and Equity Securities
     Reinsurance
    32




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Direct premiums
    
    $
    155,727
    
    
    
    151,077
    
    
    
    146,409Reinsurance assumed
    
    
    1,416
    
    
    
    1,459
    
    
    
    1,462Reinsurance ceded
    
    
    (9,863
    )
    
    
    (11,239
    )
    
    
    (11,123
    )Net premiums
    
    $
    147,280
    
    
    
    141,297
    
    
    
    136,748
   Year ended December 31,2009
    
    
    2008
    
    
    2007(In millions)Direct written life insurance inforce
    
    $
    4,432
    
    
    
    4,322
    
    
    
    4,168Reinsurance assumed
    
    
    928
    
    
    
    647
    
    
    
    644Reinsurance ceded
    
    
    (363
    )
    
    
    (302
    )
    
    
    (274
    )Net life insurance inforce
    
    $
    4,997
    
    
    
    4,667
    
    
    
    4,538
    Liquidity and Capital Resources
    33




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
          34




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
  Parent Company Liquidity and Capital Resources
  Critical Accounting Estimates
  Policy Liabilities
   Deferred Policy Acquisition Costs
     35




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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
   36




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
     Premium Revenue and Related Expenses
   Tax Accounting
   37




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Recent Accounting Pronouncements
  
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 General
  Market Risk Related to Interest Rates
  December 31, 2009
    
    
    December 31, 2008Net
    
    
    
    
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedAmortized
    
    
    Fair
    
    
    Gains
    
    
    Amortized
    
    
    Fair
    
    
    GainsCost
    
    
    Value
    
    
    (Losses)
    
    
    Cost
    
    
    Value
    
    
    (Losses)(In thousands)Fixed maturities, available-for-sale
    
    $
    389,195
    
    
    
    385,579
    
    
    
    (3,616
    )
    
    
    494,034
    
    
    
    485,155
    
    
    
    (8,879
    )Fixed maturities, held-to-maturity
    
    
    206,909
    
    
    
    199,676
    
    
    
    (7,233
    )
    
    
    
    
    
    
    
    
    
    
    Total fixed maturities
    
    $
    596,104
    
    
    
    585,255
    
    
    
    (10,849
    )
    
    
    494,034
    
    
    
    485,155
    
    
    
    (8,879
    )Total equity securities
    
    $
    25,899
    
    
    
    33,477
    
    
    
    7,578
    
    
    
    42,908
    
    
    
    43,000
    
    
    
    92
   Increases in Interest Rates(In thousands)December 31,
    
    100 Basis Points
    
    
    200 Basis Points
    
    
    300 Basis Points2009
    
    $
    (49,599
    )
    
    
    (97,573
    )
    
    
    (132,425
    )2008
    
    $
    (55,265
    )
    
    
    (85,159
    )
    
    
    (113,469
    )
  38




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##### Table of Contents



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
   39




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 (d) Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting
 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
         
  40




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Item 9B. OTHER INFORMATION
 None.
 
 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
  (b)
    
    (3) Exhibits  See the Exhibit Index
 Index to Consolidated Financial Statements and Financial Statement Schedules
 PageReferenceReport of independent registered public accounting firm
    
    
    42Consolidated statements of financial position at December 31, 2009 and 2008
    
    
    43Consolidated statements of operations  years ended December 31, 2009, 2008 and 2007
    
    
    45Consolidated statements of stockholders equity and comprehensive income  years
ended December 31, 2009, 2008 and 2007
    
    
    46Consolidated statements of cash flows  years ended December 31, 2009, 2008 and 2007
    
    
    48Notes to consolidated financial statements
    
    
    50Schedule II  Condensed Financial Information of Registrant
    
    
    83Schedule III  Supplementary Insurance Information
    
    
    86Schedule IV  Reinsurance
    
    
    87
   41




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Report of Independent Registered Public Accounting Firm
     Internal Control-Integrated Framework
  
  42




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Financial Position
December 31
(In thousands)
 2009
    
    
    2008AssetsInvestments:Fixed maturities available-for-sale, at fair value
(cost: $389,195 and $494,034 in 2009 and 2008, respectively)
    
    $
    385,579
    
    
    
    485,155Fixed maturities held-to-maturity, at amortized cost
(fair value: $199,676 in 2009)
    
    
    206,909
    
    
    
    Equity securities available-for-sale, at fair value
(cost: $25,899 and $42,908 in 2009 and 2008, respectively)
    
    
    33,477
    
    
    
    43,000Mortgage loans on real estate
    
    
    1,533
    
    
    
    339Policy loans
    
    
    32,096
    
    
    
    28,955Real estate held for sale
    
    
    2,825
    
    
    
    4,156Real estate held for investment (less $374 and $283 accumulated
depreciation in 2009 and 2008, respectively)
    
    
    6,305
    
    
    
    4,717Other long-term investments
    
    
    86
    
    
    
    680Short-term investments
    
    
    2,510
    
    
    
    2,250Total investments
    
    
    671,320
    
    
    
    569,252Cash and cash equivalents
    
    
    48,625
    
    
    
    63,792Accrued investment income
    
    
    7,455
    
    
    
    7,423Reinsurance recoverable
    
    
    11,587
    
    
    
    13,241Deferred policy acquisition costs
    
    
    115,570
    
    
    
    109,114Cost of customer relationships acquired
    
    
    34,728
    
    
    
    33,805Goodwill
    
    
    17,160
    
    
    
    15,687Other intangible assets
    
    
    1,046
    
    
    
    1,073Federal income tax receivable
    
    
    4,023
    
    
    
    2,090Property and equipment, net
    
    
    6,018
    
    
    
    6,466Due premiums, net (less $1,644 and $2,217 allowance for doubtful
accounts in 2009 and 2008)
    
    
    8,960
    
    
    
    8,958Other assets
    
    
    834
    
    
    
    1,375Total assets
    
    $
    927,326
    
    
    
    832,276
    43




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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)
 2009
    
    
    2008Liabilities and Stockholders EquityLiabilities:Future policy benefit reserves:Life insurance
    
    $
    592,358
    
    
    
    547,621Annuities
    
    
    37,882
    
    
    
    34,025Accident and health
    
    
    6,399
    
    
    
    7,442Dividend accumulations
    
    
    5,621
    
    
    
    4,795Premiums paid in advance
    
    
    20,373
    
    
    
    18,566Policy claims payable
    
    
    10,222
    
    
    
    9,318Other policyholders funds
    
    
    8,105
    
    
    
    7,929Total policy liabilities
    
    
    680,960
    
    
    
    629,696Commissions payable
    
    
    2,434
    
    
    
    2,350Deferred federal and state income taxes
    
    
    8,052
    
    
    
    3,951Payable for securities in process of settlement
    
    
    6,000
    
    
    
    Warrants outstanding
    
    
    1,819
    
    
    
    4,973Other liabilities
    
    
    11,986
    
    
    
    12,052Total liabilities
    
    
    711,251
    
    
    
    653,022Commitments and contingencies (Notes 5 and 8)Cumulative convertible preferred stock  Series A
(Series A-1  $1,000 stated value per share, 6,250 shares issued, authorized and outstanding in 2008; Series
A-2  $935 stated value per share, 5,000 shares authorized, 4,014 shares issued and outstanding in 2008)
    
    
    
    
    
    
    7,713Stockholders equity:Common stock:Class A, no par value, 100,000,000 shares authorized,
51,822,497 shares issued and outstanding in 2009 and 48,781,753 shares issued and
outstanding in 2008, including shares in treasury of 3,135,738 in 2009 and 2008
    
    
    256,703
    
    
    
    240,511Class B, no par value, 2,000,000 shares authorized,
1,001,714 shares issued and outstanding in 2009 and 2008
    
    
    3,184
    
    
    
    3,184Retained deficit
    
    
    (38,092
    )
    
    
    (55,432
    )Accumulated other comprehensive income (loss):Unrealized gains (losses) on securities, net of tax
    
    
    5,291
    
    
    
    (5,711
    )227,086
    
    
    
    182,552Treasury stock, at cost
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    216,075
    
    
    
    171,541Total liabilities and stockholders equity
    
    $
    927,326
    
    
    
    832,276
   44




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
For the Years ended December 31
(In thousands, except per share amounts)
 2009
    
    
    2008
    
    
    2007Revenues:Premiums:Life insurance
    
    $
    141,001
    
    
    
    134,953
    
    
    
    130,265Accident and health insurance
    
    
    1,531
    
    
    
    1,580
    
    
    
    1,558Property insurance
    
    
    4,748
    
    
    
    4,764
    
    
    
    4,925Net investment income
    
    
    29,602
    
    
    
    30,478
    
    
    
    30,743Realized gains (losses), net
    
    
    8,040
    
    
    
    (23,812
    )
    
    
    (94
    )Decrease (increase) in fair value of warrants
    
    
    3,154
    
    
    
    (2,662
    )
    
    
    828Other income
    
    
    904
    
    
    
    1,372
    
    
    
    1,412Total revenues
    
    
    188,980
    
    
    
    146,673
    
    
    
    169,637Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    59,988
    
    
    
    56,253
    
    
    
    50,571Increase in future policy benefit reserves
    
    
    40,790
    
    
    
    37,117
    
    
    
    36,420Policyholders dividends
    
    
    6,680
    
    
    
    6,865
    
    
    
    6,401Total insurance benefits paid or provided
    
    
    107,458
    
    
    
    100,235
    
    
    
    93,392Commissions
    
    
    35,536
    
    
    
    35,984
    
    
    
    35,641Other underwriting, acquisition and insurance
expenses
    
    
    28,340
    
    
    
    28,611
    
    
    
    27,583Capitalization of deferred policy acquisition costs
    
    
    (23,656
    )
    
    
    (24,109
    )
    
    
    (26,210
    )Amortization of deferred policy acquisition costs
    
    
    17,202
    
    
    
    15,650
    
    
    
    12,530Amortization of cost of customer relationships
acquired and other intangibles
    
    
    3,494
    
    
    
    2,897
    
    
    
    3,203Total benefits and expenses
    
    
    168,374
    
    
    
    159,268
    
    
    
    146,139Income (loss) before income tax expense
    
    
    20,606
    
    
    
    (12,595
    )
    
    
    23,498Income tax expense
    
    
    3,266
    
    
    
    3,112
    
    
    
    6,941Net income (loss)
    
    $
    17,340
    
    
    
    (15,707
    )
    
    
    16,557Net income (loss) applicable to common stockholders
    
    $
    14,835
    
    
    
    (18,263
    )
    
    
    14,555Per Share Amounts:Basic and diluted earnings (loss) per share of Class A common stock
    
    $
    0.31
    
    
    
    (0.42
    )
    
    
    0.35Basic and diluted earnings (loss) per share of Class B common stock
    
    $
    0.15
    
    
    
    (0.21
    )
    
    
    0.18
   45




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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, 2009, 2008 and 2007
(In thousands)
 Accumulatedother
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Retained
    
    
    comprehensive
    
    
    Treasury
    
    
    StockholdersClass A
    
    
    Class B
    
    
    deficit
    
    
    income (loss)
    
    
    stock
    
    
    equityBalance at December 31, 2006
    
    $
    210,066
    
    
    
    3,184
    
    
    
    (56,282
    )
    
    
    (6,346
    )
    
    
    (11,011
    )
    
    
    139,611Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    16,557
    
    
    
    
    
    
    
    
    
    
    
    16,557Unrealized investment gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,243
    
    
    
    
    
    
    
    4,243Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    16,557
    
    
    
    4,243
    
    
    
    
    
    
    
    20,800Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    (1,337
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,337
    )Sale of Class A common stock
    
    
    17,083
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,083Balance at December 31, 2007
    
    
    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
    )
    
    
    216,075
   46




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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, 2009, 2008 and 2007
(In thousands)
  Common Stock
    
    
    TreasuryClass A
    
    
    Class B
    
    
    StockBalance at December 31, 2006
    
    
    43,426
    
    
    
    1,002
    
    
    
    (3,136
    )Stock dividends
    
    
    97
    
    
    
    
    
    
    
    Stock sale
    
    
    2,683
    
    
    
    
    
    
    
    Total stock issued
    
    
    2,780
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    46,206
    
    
    
    1,002
    
    
    
    (3,136
    )Stock dividends
    
    
    90
    
    
    
    
    
    
    
    Warrant exercised
    
    
    18
    
    
    
    
    
    
    
    Preferred stock conversions
    
    
    2,468
    
    
    
    
    
    
    
    Total stock issued
    
    
    2,576
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    48,782
    
    
    
    1,002
    
    
    
    (3,136
    )Stock dividends
    
    
    32
    
    
    
    
    
    
    
    Warrant exercised
    
    
    10
    
    
    
    
    
    
    
    Preferred stock redemption
    
    
    1,704
    
    
    
    
    
    
    
    Acquisition of Integrity Capital
    
    
    1,294
    
    
    
    
    
    
    
    Total stock issued
    
    
    3,040
    
    
    
    
    
    
    
    Balance at December 31, 2009
    
    
    51,822
    
    
    
    1,002
    
    
    
    (3,136
    )
  47




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
For the Years ended December 31
(In thousands)
 2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    17,340
    
    
    
    (15,707
    )
    
    
    16,557Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Net realized losses (gains) on sale of investments and other assets
assets and other-than-temporary impairment
charges
    
    
    (8,040
    )
    
    
    23,812
    
    
    
    94Net deferred policy acquisition costs
    
    
    (6,454
    )
    
    
    (8,459
    )
    
    
    (13,680
    )Amortization of cost of customer relationships
acquired and other intangibles
    
    
    3,494
    
    
    
    2,897
    
    
    
    3,203Increase (decrease) in fair value of warrants
    
    
    (3,154
    )
    
    
    2,662
    
    
    
    (828
    )Depreciation
    
    
    1,171
    
    
    
    1,116
    
    
    
    1,076Amortization of premiums and discounts on
fixed maturities
    
    
    2,043
    
    
    
    354
    
    
    
    1,243Deferred federal income tax expense
    
    
    2,329
    
    
    
    496
    
    
    
    1,202Change in:Accrued investment income
    
    
    15
    
    
    
    (127
    )
    
    
    (8
    )Reinsurance recoverable
    
    
    1,729
    
    
    
    275
    
    
    
    2,552Due premiums and other receivables
    
    
    47
    
    
    
    (1,227
    )
    
    
    (1,702
    )Future policy benefit reserves
    
    
    40,477
    
    
    
    36,100
    
    
    
    34,132Other policy liabilities
    
    
    2,477
    
    
    
    5,412
    
    
    
    275Federal income tax
    
    
    (1,922
    )
    
    
    (1,474
    )
    
    
    (2,746
    )Commissions payable and other liabilities
    
    
    (62
    )
    
    
    637
    
    
    
    (3,367
    )Other, net
    
    
    603
    
    
    
    (335
    )
    
    
    (86
    )Net cash provided by operating activities
    
    
    52,093
    
    
    
    46,432
    
    
    
    37,917Cash flows from investing activities:Sale of fixed maturities, available-for-sale
    
    
    74,181
    
    
    
    237
    
    
    
    3,844Maturity of fixed maturities, available-for-sale
    
    
    292,706
    
    
    
    162,337
    
    
    
    75,939Purchase of fixed maturities, available-for-sale
    
    
    (255,251
    )
    
    
    (156,055
    )
    
    
    (78,845
    )Purchase of fixed maturities, held-to-maturity
    
    
    (207,052
    )
    
    
    
    
    
    
    Sale of equity securities, available-for-sale
    
    
    22,745
    
    
    
    
    
    
    
    248Purchase of equity securities available-for-sale
    
    
    (637
    )
    
    
    (24,439
    )
    
    
    (36,666
    )Principal payments on mortgage loans
    
    
    31
    
    
    
    97
    
    
    
    165Mortgage loans funded
    
    
    
    
    
    
    (115
    )
    
    
    Sale of other long-term investments and property
and equipment
    
    
    933
    
    
    
    185
    
    
    
    430
   48




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Cash Flows, Continued
For the Years ended December 31
(In thousands)
 2009
    
    
    2008
    
    
    2007Cash flows from investing activities (continued):Purchase of other long-term investments and
property
and equipment
    
    $
    (2,735
    )
    
    
    (1,110
    )
    
    
    (4,357
    )Increase in policy loans, net
    
    
    (3,141
    )
    
    
    (3,062
    )
    
    
    (1,948
    )Maturity of short-term investments
    
    
    2,250
    
    
    
    26,000
    
    
    
    Purchase of short-term investments
    
    
    (2,605
    )
    
    
    (10,173
    )
    
    
    (17,650
    )Cash acquired (paid) for acquisition, net
    
    
    9,770
    
    
    
    (8,242
    )
    
    
    Net cash used in investing activities
    
    
    (68,805
    )
    
    
    (14,340
    )
    
    
    (58,840
    )Cash flows from financing activities:Series A-1 preferred stock capital contributions
    
    
    
    
    
    
    9,375
    
    
    
    Proceeds from sale of Class A common stock
    
    
    
    
    
    
    
    
    
    
    17,083Warrants exercised
    
    
    70
    
    
    
    125
    
    
    
    Annuity and universal life deposits
    
    
    3,990
    
    
    
    2,848
    
    
    
    2,279Annuity and universal life withdrawals
    
    
    (2,515
    )
    
    
    (1,771
    )
    
    
    (1,837
    )Net cash provided by financing activities
    
    
    1,545
    
    
    
    10,577
    
    
    
    17,525Net increase (decrease) in cash and cash equivalents
    
    
    (15,167
    )
    
    
    42,669
    
    
    
    (3,398
    )Cash, and cash equivalents at beginning of year
    
    
    63,792
    
    
    
    21,123
    
    
    
    24,521Cash, and cash equivalents at end of year
    
    $
    48,625
    
    
    
    63,792
    
    
    
    21,123Supplemental Disclosure of Operating ActivitiesCash paid during the year for income taxes
    
    $
    2,876
    
    
    
    4,090
    
    
    
    8,476
 Supplemental Disclosure of Non-Cash Investing Activities:
  
  Supplemental Disclosures of Non-Cash Financing Activities:
    49




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##### Table of Contents



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
     50




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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
   51




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
        52




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Balance at beginning of period
    
    $
    33,805
    
    
    
    31,636
    
    
    
    34,812Acquisitions
    
    
    4,006
    
    
    
    5,038
    
    
    
    Amortization
    
    
    (3,432
    )
    
    
    (2,869
    )
    
    
    (3,176
    )Adjustment
    
    
    326
    
    
    
    
    
    
    
    Effects of unrealized gains on CCRA
    
    
    23
    
    
    
    
    
    
    
    Balance at end of period
    
    $
    34,728
    
    
    
    33,805
    
    
    
    31,636
   (In thousands)Year
    
    Amount2010
    
    $
    2,8002011
    
    
    2,4572012
    
    
    2,3002013
    
    
    2,1282014
    
    
    1,972Thereafter
    
    
    23,071
  Future Policy Benefits and Expenses
     53




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
     Goodwill and Other Intangible Assets
      54




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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 December 31, 2007
    
    $
    16,454
    
    
    
    (5,068
    )
    
    
    11,386Acquisition of ONLIC
    
    
    4,301
    
    
    
    
    
    
    
    4,301Balance at December 31, 2008
    
    
    20,755
    
    
    
    (5,068
    )
    
    
    15,687Acquisition of ICC
    
    
    1,238
    
    
    
    
    
    
    
    1,238Adjustment to ONLIC
    
    
    235
    
    
    
    
    
    
    
    235Balance at December 31, 2009
    
    $
    22,228
    
    
    
    (5,068
    )
    
    
    17,160
    Participating Policies
    Earnings Per Share
   55




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
     Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands, except per share amounts)Basic and diluted earnings per share:Numerator:Net income (loss)
    
    $
    17,340
    
    
    
    (15,707
    )
    
    
    16,557Less: Preferred stock dividends
    
    
    (216
    )
    
    
    (651
    )
    
    
    (665
    )Accretion of deferred issuance costs
and discounts on preferred stock
    
    
    (2,289
    )
    
    
    (1,905
    )
    
    
    (1,337
    )Net income (loss) available to common stockholders
    
    $
    14,835
    
    
    
    (18,263
    )
    
    
    14,555Net income (loss) allocated to Class A common stock
    
    $
    14,680
    
    
    
    (18,054
    )
    
    
    14,377Net income (loss) allocated to Class B common stock
    
    
    155
    
    
    
    (209
    )
    
    
    178Net income (loss) available to common stockholders
    
    $
    14,835
    
    
    
    (18,263
    )
    
    
    14,555Denominator:Weighted average shares of Class A
outstanding  basic
    
    
    47,554
    
    
    
    43,365
    
    
    
    40,519Weighted average shares of Class B
outstanding  basic and diluted
    
    
    1,002
    
    
    
    1,002
    
    
    
    1,002Total weighted average shares
outstanding  basic and diluted
    
    
    48,556
    
    
    
    44,367
    
    
    
    41,521Basic and diluted earnings (loss) per share of
Class A common stock
    
    $
    0.31
    
    
    
    (0.42
    )
    
    
    0.35Basic and diluted earnings (loss) per share of
Class B common stock
    
    $
    0.15
    
    
    
    (0.21
    )
    
    
    0.18
     56




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Income Taxes
   Property and Equipment
   At December 31,2009
    
    
    2008(In thousands)Property and equipment:Home office land and buildings
    
    $
    6,551
    
    
    
    6,535Furniture and equipment
    
    
    2,191
    
    
    
    2,255Electronic data processing equipment
    
    
    3,483
    
    
    
    3,381Automobiles and marine assets
    
    
    345
    
    
    
    412Airplane
    
    
    3,282
    
    
    
    3,274Total property and equipment
    
    
    15,852
    
    
    
    15,857Accumulated depreciation
    
    
    (9,834
    )
    
    
    (9,391
    )Net property and equipment
    
    $
    6,018
    
    
    
    6,466
 Reinsurance Recoverable
    57




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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
   58




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
        59




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
     60




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 Note 2:
    
    Investments
  December 31, 2009
    
    
    December 31, 2008Carrying
    
    
    Percent of Total
    
    
    Carrying
    
    
    Percent of TotalValue
    
    
    Carrying Value
    
    
    Value
    
    
    Carrying Value(In thousands)
    
    
    
    
    
    
    (In thousands)Fixed maturity securities
    
    $
    592,488
    
    
    
    82.3
    %
    
    $
    485,155
    
    
    
    76.5
    %Equity securities
    
    
    33,477
    
    
    
    4.6
    
    
    
    43,000
    
    
    
    6.8Mortgage loans
    
    
    1,533
    
    
    
    0.2
    
    
    
    339
    
    
    
    0.1Policy loans
    
    
    32,096
    
    
    
    4.5
    
    
    
    28,955
    
    
    
    4.6Real estate and other long-term investments
    
    
    9,216
    
    
    
    1.3
    
    
    
    9,553
    
    
    
    1.5Short-term investments
    
    
    2,510
    
    
    
    0.3
    
    
    
    2,250
    
    
    
    0.4Cash and cash equivalents
    
    
    48,625
    
    
    
    6.8
    
    
    
    63,792
    
    
    
    10.1Total cash, cash equivalents and investments
    
    $
    719,945
    
    
    
    100.0
    %
    
    $
    633,044
    
    
    
    100.0
    %
  61




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  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 Maturities
    
    $
    596,104
    
    
    
    6,056
    
    
    
    (16,905
    )
    
    
    585,255Total Equity Securities
    
    $
    25,899
    
    
    
    7,578
    
    
    
    
    
    
    
    33,477
 December 31, 2008Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair Value(In thousands)Fixed Maturities Available-for-Sale:U.S. Treasury securities
    
    $
    11,306
    
    
    
    3,113
    
    
    
    
    
    
    
    14,419U.S. Government-sponsored enterprises
    
    
    280,434
    
    
    
    1,128
    
    
    
    (500
    )
    
    
    281,062States of the United States and political
subdivisions of the states
    
    
    64,152
    
    
    
    156
    
    
    
    (6,203
    )
    
    
    58,105Foreign governments
    
    
    105
    
    
    
    29
    
    
    
    
    
    
    
    134Corporate
    
    
    87,320
    
    
    
    1,134
    
    
    
    (8,926
    )
    
    
    79,528Securities not due at a single maturity date
    
    
    50,717
    
    
    
    1,564
    
    
    
    (374
    )
    
    
    51,907Total fixed maturities available-for-sale
    
    $
    494,034
    
    
    
    7,124
    
    
    
    (16,003
    )
    
    
    485,155Total Equity Securities
    
    $
    42,908
    
    
    
    92
    
    
    
    
    
    
    
    43,000
  62




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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
    )
    
    
    213Security issued by states and
political subdivisions
    
    
    19,055
    
    
    
    (343
    )
    
    
    19
    
    
    
    14,995
    
    
    
    (2,856
    )
    
    
    15
    
    
    
    34,050
    
    
    
    (3,199
    )
    
    
    34Corporate
    
    
    36,342
    
    
    
    (541
    )
    
    
    21
    
    
    
    12,857
    
    
    
    (1,261
    )
    
    
    12
    
    
    
    49,199
    
    
    
    (1,802
    )
    
    
    33Securities not due at a single
maturity date
    
    
    179
    
    
    
    (1
    )
    
    
    1
    
    
    
    637
    
    
    
    (42
    )
    
    
    8
    
    
    
    816
    
    
    
    (43
    )
    
    
    9Total available-for-sale
    
    
    225,090
    
    
    
    (5,495
    )
    
    
    254
    
    
    
    28,489
    
    
    
    (4,159
    )
    
    
    35
    
    
    
    253,579
    
    
    
    (9,654
    )
    
    
    289Held-to-maturity securities:U.S. Government-sponsored
enterprises
    
    
    185,659
    
    
    
    (7,251
    )
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,659
    
    
    
    (7,251
    )
    
    
    81Total fixed maturities
    
    $
    410,749
    
    
    
    (12,746
    )
    
    
    335
    
    
    
    28,489
    
    
    
    (4,159
    )
    
    
    35
    
    
    
    439,238
    
    
    
    (16,905
    )
    
    
    370
      63




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  December 31, 2008Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # ofValue
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities(In thousands, except for # of securities)Available-for-sale securities:U.S. Government-sponsored
enterprises
    
    $
    18,680
    
    
    
    (265
    )
    
    
    14
    
    
    
    11,256
    
    
    
    (235
    )
    
    
    11
    
    
    
    29,936
    
    
    
    (500
    )
    
    
    25Security issued by states and
political subdivisions
    
    
    32,389
    
    
    
    (2,827
    )
    
    
    39
    
    
    
    21,492
    
    
    
    (3,376
    )
    
    
    23
    
    
    
    53,881
    
    
    
    (6,203
    )
    
    
    62Corporate
    
    
    20,509
    
    
    
    (2,170
    )
    
    
    51
    
    
    
    34,880
    
    
    
    (6,756
    )
    
    
    20
    
    
    
    55,389
    
    
    
    (8,926
    )
    
    
    71Securities not due at a single
maturity date
    
    
    118
    
    
    
    (8
    )
    
    
    3
    
    
    
    11,629
    
    
    
    (366
    )
    
    
    24
    
    
    
    11,747
    
    
    
    (374
    )
    
    
    27Total fixed maturities
    
    $
    71,696
    
    
    
    (5,270
    )
    
    
    107
    
    
    
    79,257
    
    
    
    (10,733
    )
    
    
    78
    
    
    
    150,953
    
    
    
    (16,003
    )
    
    
    185
  Fixed MaturitiesCost orAmortized Cost
    
    
    Fair Value(In thousands)Due in one year or less
    
    $
    13,930
    
    
    
    14,106Due after one year through five years
    
    
    32,800
    
    
    
    33,375Due after five years through ten years
    
    
    38,230
    
    
    
    38,744Due after ten years
    
    
    492,206
    
    
    
    479,578577,166
    
    
    
    565,803Securities not due at a single maturity date
    
    
    18,938
    
    
    
    19,452Total fixed maturities
    
    $
    596,104
    
    
    
    585,255
    64




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Investment income on:Fixed maturities
    
    $
    25,921
    
    
    
    27,536
    
    
    
    26,925Equity securities
    
    
    1,056
    
    
    
    1,027
    
    
    
    2,171Mortgage loans on real estate
    
    
    50
    
    
    
    28
    
    
    
    33Policy loans
    
    
    2,444
    
    
    
    2,105
    
    
    
    1,919Long-term investments
    
    
    465
    
    
    
    39
    
    
    
    (47
    )Other
    
    
    507
    
    
    
    357
    
    
    
    19130,443
    
    
    
    31,092
    
    
    
    31,192Investment expenses
    
    
    (841
    )
    
    
    (614
    )
    
    
    (449
    )Net investment income
    
    $
    29,602
    
    
    
    30,478
    
    
    
    30,743
  Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Proceeds
    
    $
    74,181
    
    
    
    237
    
    
    
    3,844Gross realized gains
    
    $
    2,752
    
    
    
    5
    
    
    
    18Gross realized losses
    
    $
    
    
    
    
    
    
    
    
    (141
    )
   Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Proceeds
    
    $
    22,745
    
    
    
    
    
    
    
    248Gross realized gains
    
    $
    5,292
    
    
    
    
    
    
    
    30Gross realized losses
    
    $
    
    
    
    
    
    
    
    
    (32
    )
   65




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Realized gains (losses):Sales and maturities:Fixed maturities
    
    $
    2,705
    
    
    
    (2
    )
    
    
    (123
    )Equity securities
    
    
    5,292
    
    
    
    
    
    
    
    (2
    )Property and equipment
    
    
    323
    
    
    
    (4
    )
    
    
    Other long-term investments
    
    
    16
    
    
    
    18
    
    
    
    31Net realized gains (losses) on sales and maturities
    
    
    8,336
    
    
    
    12
    
    
    
    (94
    )Other-than-temporary impairments:Fixed maturities
    
    
    (103
    )
    
    
    (288
    )
    
    
    Equity securities
    
    
    (193
    )
    
    
    (23,536
    )
    
    
    Realized loss on OTTI
    
    
    (296
    )
    
    
    (23,824
    )
    
    
    Net realized gains (losses)
    
    $
    8,040
    
    
    
    (23,812
    )
    
    
    (94
    )
 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.
     66




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  December 31, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(In thousands)Financial Assets:Fixed Maturities Available-for-Sale
    
    $
    385,579
    
    
    
    12,434
    
    
    
    372,568
    
    
    
    577Equity Securities Available-for-Sale
    
    
    33,477
    
    
    
    33,477
    
    
    
    
    
    
    
    Total Financial Assets
    
    $
    419,056
    
    
    
    45,911
    
    
    
    372,568
    
    
    
    577Financial Liabilities:Warrants outstanding
    
    $
    1,819
    
    
    
    
    
    
    
    1,819
    
    
    
    
  December 31, 2009(In thousands)Ending Balance at December 31, 2008
    
    $
    654Total realized and unrealized gains (losses):Included in net income
    
    
    Included in other comprehensive income
    
    
    (24
    )Principal paydowns
    
    
    (53
    )Transfer in and (out) of Level 3
    
    
    Ending Balance at December 31, 2009
    
    $
    577
  Financial Instruments not Carried at Fair Value
  December 31, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In thousands)Financial assets:Fixed maturities, held-to-maturity
    
    $
    206,909
    
    
    
    199,676
    
    
    
    
    
    
    
    Mortgage loans
    
    
    1,533
    
    
    
    1,484
    
    
    
    339
    
    
    
    370Policy loans
    
    
    32,096
    
    
    
    32,096
    
    
    
    28,955
    
    
    
    28,955Cash and cash equivalents
    
    
    48,625
    
    
    
    48,625
    
    
    
    63,792
    
    
    
    63,792Financial liabilities:Annuities
    
    
    37,882
    
    
    
    33,980
    
    
    
    34,025
    
    
    
    29,107
  67




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
       Note 4:
    
    Policy Liabilities
   68




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Policy claims payable at January 1
    
    $
    9,318
    
    
    
    6,908
    
    
    
    9,448Less: reinsurance recoverable
    
    
    2,706
    
    
    
    1,918
    
    
    
    2,039Net balance at January 1
    
    
    6,612
    
    
    
    4,990
    
    
    
    7,409Acquisition of ONLIC and ICIC, gross and net
    
    
    6
    
    
    
    140
    
    
    
    Add claims incurred, related to:Current year
    
    
    25,077
    
    
    
    25,308
    
    
    
    22,985Prior years
    
    
    (556
    )
    
    
    305
    
    
    
    (883
    )24,521
    
    
    
    25,613
    
    
    
    22,102Deduct claims paid, related to:Current year
    
    
    18,386
    
    
    
    19,735
    
    
    
    18,736Prior years
    
    
    4,986
    
    
    
    4,396
    
    
    
    5,78523,372
    
    
    
    24,131
    
    
    
    24,521Net balance December 31
    
    
    7,767
    
    
    
    6,612
    
    
    
    4,990Plus: reinsurance recoverable
    
    
    2,455
    
    
    
    2,706
    
    
    
    1,918Policy claims payable, December 31
    
    $
    10,222
    
    
    
    9,318
    
    
    
    6,908
    Note 5:
    
    Reinsurance
    69




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  At December 31,2009
    
    
    2008(In thousands)Aggregate assumed life insurance in force
    
    $
    927,917
    
    
    
    647,041Aggregate ceded life insurance in force
    
    $
    (362,891
    )
    
    
    (302,253
    )Net life insurance in force
    
    $
    4,997,043
    
    
    
    4,666,848
  Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Premiums from short-duration contracts:Direct
    
    $
    6,834
    
    
    
    6,856
    
    
    
    6,803Assumed
    
    
    
    
    
    
    
    
    
    
    Ceded
    
    
    (1,066
    )
    
    
    (1,202
    )
    
    
    (843
    )Net premiums earned
    
    
    5,768
    
    
    
    5,654
    
    
    
    5,960Premiums from long-duration contracts:Direct
    
    
    148,893
    
    
    
    144,221
    
    
    
    139,606Assumed
    
    
    1,416
    
    
    
    1,459
    
    
    
    1,462Ceded
    
    
    (8,797
    )
    
    
    (10,037
    )
    
    
    (10,280
    )Net premiums earned
    
    
    141,512
    
    
    
    135,643
    
    
    
    130,788Total premiums earned
    
    $
    147,280
    
    
    
    141,297
    
    
    
    136,748Claims and surrenders assumed
    
    $
    1,434
    
    
    
    1,429
    
    
    
    1,422Claims and surrenders ceded
    
    $
    (5,649
    )
    
    
    (9,982
    )
    
    
    (9,338
    )
  Note 6:
    
    Stockholders Equity and Restrictions
   70




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
  At December 31,Combined Statutory Stockholders Equity
    
    2009
    
    
    2008(In thousands)(Unaudited)Life insurance operations
    
    $
    106,688
    
    
    
    83,906Property insurance operations
    
    
    4,655
    
    
    
    3,156Total statutory capital and surplus
    
    $
    111,343
    
    
    
    87,062
 Year ended December 31,Combined Statutory Net Income (Loss)
    
    2009
    
    
    2008
    
    
    2007(In thousands)(Unaudited)Life insurance operations
    
    $
    15,546
    
    
    
    (11,839
    )
    
    
    14,644Property insurance operations
    
    
    (444
    )
    
    
    (1,436
    )
    
    
    1,184Total statutory net income (loss)
    
    $
    15,102
    
    
    
    (13,275
    )
    
    
    15,828
   Note 7:
    
    Convertible Preferred Stock
    71




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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
    
    $
    652
    
    
    
    356
    
    
    
    276
    
    
    
    20
    
    
    
    Future policy benefit reserves:Life insurance
    
    
    592,358
    
    
    
    220
    
    
    
    1,236
    
    
    
    11,599
    
    
    
    579,303Annuities
    
    
    37,882
    
    
    
    19,816
    
    
    
    8,882
    
    
    
    3,829
    
    
    
    5,355Accident and health
    
    
    6,399
    
    
    
    6,399
    
    
    
    
    
    
    
    
    
    
    
    Total future policy benefit reserves
    
    
    636,639
    
    
    
    26,435
    
    
    
    10,118
    
    
    
    15,428
    
    
    
    584,658Policy claims payable:Life insurance
    
    
    8,856
    
    
    
    8,856
    
    
    
    
    
    
    
    
    
    
    
    Accident and health
    
    
    874
    
    
    
    874
    
    
    
    
    
    
    
    
    
    
    
    Casualty
    
    
    492
    
    
    
    492
    
    
    
    
    
    
    
    
    
    
    
    Total policy claims payable
    
    
    10,222
    
    
    
    10,222
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    647,513
    
    
    
    37,013
    
    
    
    10,394
    
    
    
    15,448
    
    
    
    584,658
  Citizens Insurance Company of America, Citizens, Inc.,
Harold E. Riley and Mark A. Oliver, Petitioners v. Fernando Hakim Daccach Respondent
  72




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 The State of
Louisiana v. AAA Insurance Road Home Litigation Road Home Litigation
  
    
    disputes over insurance coverage or claims adjudication;
 
    
    regulatory compliance with insurance and securities laws in the United States
and in foreign countries;
 
    
    disputes with our marketing firms, consultants and employee agents over
compensation and termination of contracts and related claims;
 
    
    disputes regarding our tax liabilities;
 
    
    disputes relative to reinsurance and coinsurance agreements; and
 
    
    disputes relating to businesses acquired and operated by us.
  Note 9:
    
    Segment and Other Operating Information
 Operating Segment Information
  The allocation of expenses within the Citizens, Inc. management services agreement
was changed in the first quarter of 2008 to reflect the conversion of Security Plans
policies to our policy administration system at year end 2007. Approximately $4.0
million in expenses were reallocated from the Life Insurance segment to the Home Service
segment, which is reflected in the lower profits for the Home Service segment compared
to comparable periods in 2007.
   73




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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, net
    
    
    1,100
    
    
    
    6,562
    
    
    
    378
    
    
    
    8,040Decrease 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
    
    
    (17,871
    )
    
    
    (5,785
    )
    
    
    
    
    
    
    (23,656
    )Amortization of deferred policy acquisition costs
    
    
    14,757
    
    
    
    2,445
    
    
    
    
    
    
    
    17,202Amortization 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 before income tax expense
    
    $
    10,472
    
    
    
    9,245
    
    
    
    889
    
    
    
    20,606
  74




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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
    )Increase 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
    
    
    (19,177
    )
    
    
    (4,932
    )
    
    
    
    
    
    
    (24,109
    )Amortization of deferred policy acquisition costs
    
    
    13,331
    
    
    
    2,319
    
    
    
    
    
    
    
    15,650Amortization 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
    )
  75




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
 For the Year Ended December 31, 2007OtherLife
    
    
    Home
    
    
    Non-InsuranceInsurance
    
    
    Service
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    97,292
    
    
    
    39,456
    
    
    
    
    
    
    
    136,748Net investment income
    
    
    16,891
    
    
    
    13,502
    
    
    
    350
    
    
    
    30,743Realized gains (losses), net
    
    
    3
    
    
    
    (85
    )
    
    
    (12
    )
    
    
    (94
    )Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    828
    
    
    
    828Other income
    
    
    660
    
    
    
    6
    
    
    
    746
    
    
    
    1,412Total revenue
    
    
    114,846
    
    
    
    52,879
    
    
    
    1,912
    
    
    
    169,637Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    34,305
    
    
    
    16,266
    
    
    
    
    
    
    
    50,571Increase in future policy benefit reserves
    
    
    34,160
    
    
    
    2,260
    
    
    
    
    
    
    
    36,420Policyholders dividends
    
    
    6,401
    
    
    
    
    
    
    
    
    
    
    
    6,401Total insurance benefits paid or provided
    
    
    74,866
    
    
    
    18,526
    
    
    
    
    
    
    
    93,392Commissions
    
    
    22,144
    
    
    
    13,497
    
    
    
    
    
    
    
    35,641Other underwriting, acquisition and insurance
expenses
    
    
    13,294
    
    
    
    10,001
    
    
    
    4,288
    
    
    
    27,583Capitalization of deferred policy acquisition costs
    
    
    (20,653
    )
    
    
    (5,557
    )
    
    
    
    
    
    
    (26,210
    )Amortization of deferred policy acquisition costs
    
    
    10,874
    
    
    
    1,656
    
    
    
    
    
    
    
    12,530Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,176
    
    
    
    2,027
    
    
    
    
    
    
    
    3,203Total benefits and expenses
    
    
    101,701
    
    
    
    40,150
    
    
    
    4,288
    
    
    
    146,139Income (loss) before income tax expense
    
    $
    13,145
    
    
    
    12,729
    
    
    
    (2,376
    )
    
    
    23,498
  76




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 2009, 2008 and 2007
  At December 31,2009
    
    
    2008(In thousands)Assets:Life Insurance
    
    $
    547,775
    
    
    
    481,606Home Service Insurance
    
    
    341,920
    
    
    
    316,184Other Non-Insurance Enterprises
    
    
    37,631
    
    
    
    34,486Total
    
    $
    927,326
    
    
    
    832,276
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Premium income:Ordinary life
    
    $
    139,843
    
    
    
    133,775
    
    
    
    129,100Group life
    
    
    1,158
    
    
    
    1,178
    
    
    
    1,165Accident and health
    
    
    1,531
    
    
    
    1,580
    
    
    
    1,558Property
    
    
    4,748
    
    
    
    4,764
    
    
    
    4,925Total premium income
    
    $
    147,280
    
    
    
    141,297
    
    
    
    136,748
 Geographic Information
  Area
    
    2009
    
    
    2008
    
    
    2007(In thousands)United States
    
    $
    53,741
    
    
    
    51,616
    
    
    
    53,290Colombia
    
    
    23,390
    
    
    
    19,509
    
    
    
    24,427Taiwan
    
    
    14,096
    
    
    
    13,818
    
    
    
    12,607Venezuela
    
    
    13,991
    
    
    
    12,617
    
    
    
    11,652Ecuador
    
    
    10,754
    
    
    
    10,909
    
    
    
    9,673Argentina
    
    
    8,536
    
    
    
    9,598
    
    
    
    9,133Other foreign countries
    
    
    31,219
    
    
    
    33,010
    
    
    
    25,627Net reinsurance
    
    
    (8,447
    )
    
    
    (9,780
    )
    
    
    (9,661
    )Total
    
    $
    147,280
    
    
    
    141,297
    
    
    
    136,748
  77




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 2009, 2008 and 2007
 Note 10:
    
    Income Taxes
   Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Expected tax expense (benefit)
    
    $
    7,212
    
    
    
    (4,408
    )
    
    
    8,224Change in valuation allowance
    
    
    (2,795
    )
    
    
    6,900
    
    
    
    (1,177
    )Tax-exempt interest
    
    
    (196
    )
    
    
    (234
    )
    
    
    (241
    )Change in fair value of options and
warrants
    
    
    (1,104
    )
    
    
    932
    
    
    
    (290
    )Adjustment of prior year taxes
    
    
    36
    
    
    
    23
    
    
    
    294Taxable portion of intercompany dividend
    
    
    
    
    
    
    
    
    
    
    175State income tax credits
    
    
    3
    
    
    
    4
    
    
    
    (149
    )Change in expected tax rate related to
deferred taxes
    
    
    
    
    
    
    
    
    
    
    48Effect of graduated rates
    
    
    25
    
    
    
    (62
    )
    
    
    Other
    
    
    72
    
    
    
    (49
    )
    
    
    48Federal income tax expense
    
    
    3,253
    
    
    
    3,106
    
    
    
    6,932State income tax expense
    
    
    13
    
    
    
    6
    
    
    
    9Total income tax expense
    
    $
    3,266
    
    
    
    3,112
    
    
    
    6,941
  Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Current
    
    $
    937
    
    
    
    2,616
    
    
    
    5,739Deferred
    
    
    2,329
    
    
    
    496
    
    
    
    1,202Total income tax expense
    
    $
    3,266
    
    
    
    3,112
    
    
    
    6,941
  78




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 2009, 2008 and 2007
  At December 31,2009
    
    
    2008(In thousands)Deferred tax assets:Future policy benefit reserves
    
    $
    23,632
    
    
    
    23,699Net operating and capital loss carryforwards
    
    
    5,324
    
    
    
    4,833Due and accrued dividends and expenses
    
    
    1,246
    
    
    
    1,310Investments available-for-sale
    
    
    4,580
    
    
    
    13,106State income tax credits
    
    
    142
    
    
    
    145Other
    
    
    1,134
    
    
    
    1,253Total gross deferred tax assets
    
    
    36,058
    
    
    
    44,346Valuation allowance
    
    
    (2,462
    )
    
    
    (7,704
    )Total gross deferred tax assets net of valuation
allowance
    
    
    33,596
    
    
    
    36,642Deferred tax liabilities:Deferred policy acquisition costs, cost of customer
relationships acquired and intangible assets
    
    
    (40,285
    )
    
    
    (38,452
    )Investments amortization
    
    
    (121
    )
    
    
    (569
    )Other
    
    
    (1,242
    )
    
    
    (1,572
    )Total gross deferred tax liabilities
    
    
    (41,648
    )
    
    
    (40,593
    )Net deferred tax liability
    
    $
    (8,052
    )
    
    
    (3,951
    )
  December 31,2009
    
    
    2008(In thousands)Deferred federal and state income taxes:Balance January 1
    
    $
    (3,951
    )
    
    
    (4,810
    )Deferred tax benefit (expense)
    
    
    (5,113
    )
    
    
    (496
    )Change in valuation allowance
    
    
    2,795
    
    
    
    Acquisition of ONLIC and ICIC
    
    
    241
    
    
    
    216Charge to ONLIC goodwill
    
    
    (254
    )
    
    
    ONLIC valuation allowance
    
    
    
    
    
    
    (804
    )Investments available-for-sale
    
    
    (1,762
    )
    
    
    1,943Effects of unrealized gains on CCRA and DAC
    
    
    (8
    )
    
    
    Balance December 31
    
    $
    (8,052
    )
    
    
    (3,951
    )
  79




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 2009, 2008 and 2007
     
     80




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 2009, 2008 and 2007
 Note 11:
    
    Other Comprehensive Income (Loss)
  Pre-tax
    
    
    Tax
    
    
    NetAmount
    
    
    Effect
    
    
    Amount(In thousands)Year ended December 31, 2009Unrealized gain on securities:Unrealized holding gain arising
during the period
    
    $
    20,449
    
    
    
    (7,158
    )
    
    
    13,291Reclassification adjustment for
gains 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
    
    $
    12,772
    
    
    $
    (1,770
    )
    
    $
    11,002Year ended December 31, 2008Unrealized loss on securities:Unrealized holding loss arising
during the period
    
    $
    (29,377
    )
    
    
    10,283
    
    
    
    (19,094
    )Add reclassification adjustment for
losses included in net income
    
    
    23,826
    
    
    
    (8,340
    )
    
    
    15,486Other comprehensive loss
    
    $
    (5,551
    )
    
    
    1,943
    
    
    
    (3,608
    )Year ended December 31, 2007Unrealized gains on securities:Unrealized holding gain arising
during the period
    
    $
    6,228
    
    
    
    (2,084
    )
    
    
    4,144Add reclassification adjustment for
losses included in net income
    
    
    125
    
    
    
    (44
    )
    
    
    81Change in tax valuation allowance
    
    
    
    
    
    
    18
    
    
    
    18Other comprehensive income
    
    $
    6,353
    
    
    
    (2,110
    )
    
    
    4,243
 Note 12:
    
    Profit-Sharing Plan
  Note 13:
    
    Related Party Transactions
   81




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 2009, 2008 and 2007
  Note 14:
    
    Quarterly Financial Information (Unaudited)
  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
  Fourth
    
    
    Third
    
    
    Second
    
    
    First2008
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except per share amounts)Revenues
    
    $
    23,303
    
    
    
    40,163
    
    
    
    43,281
    
    
    
    39,926Benefits and expenses
    
    
    44,114
    
    
    
    40,661
    
    
    
    38,948
    
    
    
    35,545Federal income tax expense (benefit)
    
    
    (191
    )
    
    
    316
    
    
    
    1,341
    
    
    
    1,646Net income (loss)
    
    
    (20,620
    )
    
    
    (814
    )
    
    
    2,992
    
    
    
    2,735Net income (loss) available to
common shareholders
    
    
    (21,375
    )
    
    
    (1,604
    )
    
    
    2,493
    
    
    
    2,223Basic and diluted earnings (loss) per
share of Class A common stock
    
    
    (0.48
    )
    
    
    (0.04
    )
    
    
    0.06
    
    
    
    0.05Basic and diluted earnings (loss) per
share of Class B common stock
    
    
    (0.24
    )
    
    
    (0.02
    )
    
    
    0.03
    
    
    
    0.03
 Note 15:
    
    Subsequent Events
   82




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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 31,2009
    
    
    2008(In thousands)AssetsInvestment in subsidiaries (1)
    
    $
    185,775
    
    
    
    151,973Fixed maturities available-for-sale, at fair value
    
    
    1,715
    
    
    
    4,301Mortgage loans on real estate
    
    
    500
    
    
    
    Real estate and other long-term investments
    
    
    6,360
    
    
    
    5,262Short-term investments
    
    
    
    
    
    
    2,250Cash
    
    
    21,202
    
    
    
    16,638Accrued investment income
    
    
    10
    
    
    
    58Accounts receivable from subsidiaries (1)
    
    
    3,988
    
    
    
    4,746Other assets
    
    
    734
    
    
    
    1,029Total assets
    
    $
    220,284
    
    
    
    186,257Liabilities and Stockholders EquityLiabilities:Accrued expense and other liabilities
    
    $
    2,390
    
    
    
    2,030Liabilities for options and warrants
    
    
    1,819
    
    
    
    4,973Total Liabilities
    
    
    4,209
    
    
    
    7,003Cumulative convertible preferred stock
    
    
    
    
    
    
    7,713Stockholders equity:Common stock:Class A
    
    
    256,703
    
    
    
    240,511Class B
    
    
    3,184
    
    
    
    3,184Retained deficit
    
    
    (38,092
    )
    
    
    (55,432
    )Unrealized investment gains (losses) on securities held by
parent and subsidiaries, net of tax
    
    
    5,291
    
    
    
    (5,711
    )Treasury stock
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    216,075
    
    
    
    171,541Total liabilities and stockholders equity
    
    $
    220,284
    
    
    
    186,257
 (1)
    
    Eliminated in consolidation.   83




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##### Table of Contents



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 31,2009
    
    
    2008
    
    
    2007(In thousands)Revenues:Management service fees (1)
    
    $
    29,885
    
    
    
    29,764
    
    
    
    27,110Investment income
    
    
    164
    
    
    
    808
    
    
    
    342Decrease (increase) in fair value of warrants
    
    
    3,154
    
    
    
    (2,662
    )
    
    
    828Other
    
    
    2
    
    
    
    11
    
    
    
    6Realized gains (losses)
    
    
    40
    
    
    
    18
    
    
    
    (12
    )Total revenues
    
    
    33,245
    
    
    
    27,939
    
    
    
    28,274Expenses:General
    
    
    27,907
    
    
    
    27,791
    
    
    
    25,547Taxes
    
    
    1,363
    
    
    
    1,186
    
    
    
    1,345Total expenses
    
    
    29,270
    
    
    
    28,977
    
    
    
    26,892Income (loss) before equity in income (loss)
of consolidated subsidiaries
    
    
    3,975
    
    
    
    (1,038
    )
    
    
    1,382Equity in income (loss) of consolidated subsidiaries
    
    
    13,365
    
    
    
    (14,669
    )
    
    
    15,175Net income (loss)
    
    $
    17,340
    
    
    
    (15,707
    )
    
    
    16,557
 (1)
    
    Eliminated in consolidation.   84




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##### Table of Contents



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 31,2009
    
    
    2008
    
    
    2007(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    17,340
    
    
    
    (15,707
    )
    
    
    16,557Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Realized losses (gains)
    
    
    (40
    )
    
    
    (18
    )
    
    
    12Equity in net (income) loss of consolidated subsidiaries
    
    
    (13,365
    )
    
    
    14,669
    
    
    
    (15,175
    )Increase (decrease) in fair value of options and
warrants
    
    
    (3,154
    )
    
    
    2,662
    
    
    
    (828
    )Accrued expenses and other liabilities
    
    
    (204
    )
    
    
    1,006
    
    
    
    353Amortization of discounts on short-term investments
    
    
    
    
    
    
    (428
    )
    
    
    Depreciation
    
    
    252
    
    
    
    126
    
    
    
    94Change in accrued investment income
    
    
    48
    
    
    
    21
    
    
    
    28Increase (decrease) in receivable from subsidiaries
    
    
    758
    
    
    
    (2,457
    )
    
    
    (644
    )Other
    
    
    868
    
    
    
    (1,379
    )
    
    
    225Net cash provided by (used in) operating activities
    
    
    2,503
    
    
    
    (1,505
    )
    
    
    622Cash flows from investing activities:Purchase of fixed maturities, available-for-sale
    
    
    (3,000
    )
    
    
    (1,000
    )
    
    
    Sale of fixed maturities, available-for-sale
    
    
    
    
    
    
    
    
    
    
    1,988Maturities of fixed maturities, available-for-sale
    
    
    5,550
    
    
    
    2,700
    
    
    
    500Sale of real estate and other long-term investments
    
    
    212
    
    
    
    58
    
    
    
    104Purchase of other long-term investments
and property and equipment
    
    
    (2,021
    )
    
    
    (806
    )
    
    
    (3,901
    )Maturity of short-term investments
    
    
    2,250
    
    
    
    26,000
    
    
    
    Purchase of short-term investments
    
    
    
    
    
    
    (10,173
    )
    
    
    (17,650
    )Capital contribution to subsidiary
    
    
    (1,000
    )
    
    
    
    
    
    
    Cash paid for acquisition, net
    
    
    
    
    
    
    (8,242
    )
    
    
    Net cash provided by (used by) investing activities
    
    
    1,991
    
    
    
    8,537
    
    
    
    (18,959
    )Cash flows from financing activities:Proceeds from sale of Class A common stock
    
    
    
    
    
    
    
    
    
    
    17,083Warrants exercised
    
    
    70
    
    
    
    125
    
    
    
    Series A-1 preferred stock capital contributions
    
    
    
    
    
    
    9,375
    
    
    
    Net cash provided by financing activities
    
    
    70
    
    
    
    9,500
    
    
    
    17,083Net increase (decrease) in cash
    
    
    4,564
    
    
    
    16,532
    
    
    
    (1,254
    )Cash at beginning of year
    
    
    16,638
    
    
    
    106
    
    
    
    1,360Cash at end of year
    
    $
    21,202
    
    
    
    16,638
    
    
    
    106
   85




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Financial Schedules
 
 Schedule III
 Supplementary Insurance Information
 At December 31,2009
    
    
    2008(In thousands)Deferred policy acquisition cost:Life Insurance
    
    $
    99,220
    
    
    
    96,106Home Service Insurance
    
    
    16,350
    
    
    
    13,008Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated deferred policy acquisition costs:
    
    $
    115,570
    
    
    
    109,114Future policy benefit reserves and policy
claims payable:Life Insurance
    
    $
    419,766
    
    
    
    377,039Home Service Insurance
    
    
    227,095
    
    
    
    221,367Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated future policy benefit reserves
and policy claims payable
    
    $
    646,861
    
    
    
    598,406Unearned premiums:Life Insurance
    
    $
    1,270
    
    
    
    690Home Service Insurance
    
    
    179
    
    
    
    194Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated unearned premiums
    
    $
    1,449
    
    
    
    884Other policy claims and benefits payable:Life Insurance
    
    $
    27,942
    
    
    
    25,742Home Service Insurance
    
    
    4,708
    
    
    
    4,664Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated other policy claims and benefits
payable
    
    $
    32,650
    
    
    
    30,406
   86




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##### Table of Contents



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, 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
    %Year ended December 31, 2007Life insurance in force
    
    $
    4,167,513
    
    
    
    273,553
    
    
    
    644,242
    
    
    
    4,538,202
    
    
    
    14.2
    %Premiums:Life insurance
    
    
    130,921
    
    
    
    2,118
    
    
    
    1,462
    
    
    
    130,265Accident and health insurance
    
    
    9,720
    
    
    
    8,162
    
    
    
    
    
    
    
    1,558Property insurance
    
    
    5,768
    
    
    
    843
    
    
    
    
    
    
    
    4,925Total premiums
    
    $
    146,409
    
    
    
    11,123
    
    
    
    1,462
    
    
    
    136,748
    
    
    
    1.0
    %
   87




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##### Table of Contents



SIGNATURES
  CITIZENS, INC.Date:  March 12, 2010
    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,
Chief Corporate Officer
and President/s/ Richard C. Scott
    
    /s/ Robert B. Sloan, Jr.Dr. Richard C. Scott, Director
    
    Robert B. Sloan, Jr., Director/s/ E. Dean Gage
    
    /s/ Steven F. SheltonDr. E. Dean Gage, Director
    
    Steven F. Shelton, Director/s/ Timothy T. Timmerman
    
    /s/ Grant G. TeaffTimothy T. Timmerman, Director
    
    Grant G. Teaff, Director/s/ Dottie S. RileyDottie S. Riley, Director
  88




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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)
  89




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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*
 *
    
    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. 
  90