EDGAR 10-K Filing

Company CIK: 24090
Filing Year: 2025
Filename: 24090_10-K_2025_0000024090-25-000018.json

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ITEM 1. BUSINESS
Item 1. BUSINESS
OVERVIEW
Citizens, Inc. ("Citizens" or the "Company") is an insurance holding company incorporated in Colorado and with its headquarters in Austin, Texas, serving the life insurance needs of individuals in the United States since 1969 and internationally since 1975. Through our domestic insurance subsidiaries, we are licensed to issue insurance products in 43 U.S. states and through our international subsidiaries, we provide insurance benefits to residents in almost 80 different countries. We pursue a strategy of offering traditional insurance products in niche markets where we believe we are able to achieve competitive advantages. We had approximately $1.7 billion of assets and over $5.2 billion of direct insurance in force at December 31, 2024.
We operate in two business segments:
•Life Insurance - Internationally, we sell U.S. dollar-denominated whole life insurance, endowment and critical illness policies to non-U.S. residents, located principally in Latin America and the Pacific Rim. In the U.S. we primarily sell whole life final expense insurance and insurance with living benefits.
•Home Service Insurance - We sell affordable life insurance policies to lower-income households in Louisiana, Mississippi and Arkansas.
Our Principal Brands
LIFE INSURANCE SEGMENT
Internationally, we conduct our Life Insurance segment business through CICA Life, A.I., a Puerto Rico company ("CICA International").
Domestically, we conduct our Life Insurance segment business through CICA Life Insurance Company of America ("CICA Domestic").
HOME SERVICE INSURANCE SEGMENT
We conduct our Home Service Insurance segment through Security Plan Life Insurance Company ("SPLIC") and Magnolia Guaranty Life Insurance Company ("Magnolia").
As an insurance provider, we collect premiums on an ongoing basis from our policyholders and invest the majority of the premiums to pay future benefits, including claims, maturities, surrenders and policyholder dividends. Accordingly, we derive our revenues principally from: (1) life insurance premiums, and (2) net investment income. In addition to paying and reserving for insurance benefits that we pay to our policyholders and their beneficiaries, our expenses consist primarily of the costs of selling our insurance products, operating expenses and income taxes.
Because collection of premiums is the primary source of our revenues, our overall financial performance depends primarily upon the successful development, distribution and persistency of our products. A key to product development is the accuracy of our pricing assumptions as profitability is affected by actual experience deviations from the established assumptions. We seek to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover the ultimate cost of paying claims on our policies, our expenses and will also yield a profit margin. Pricing adequacy depends on a number of factors, including the ability to project future claims based on historical claim experience adjusted for known trends, proper evaluation of underwriting risks, the Company’s response to competitors, commission payments for selling our products, expectations about interest rates, regulatory or legal developments, and expense levels.
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CITIZENS, INC.
In addition to insurance premiums, the investment return, or yield, on invested assets is an important element of the Company’s earnings since life insurance products are priced with the assumption that premiums received can be invested for a long period of time before benefits are paid. Pursuant to regulatory guidelines, most of the Company’s invested assets are held in available-for-sale ("AFS") fixed maturity securities, primarily in asset classes of corporate bonds, municipal bonds, and government obligation bonds. The interest rate environment has a significant impact on the determination of insurance contract liabilities, our investment rates and yields, and our asset/liability management. The profitability of our "spread-based" product features depends largely on the Company’s ability to earn higher returns on invested assets than the interest we credit to policyholders. The primary investment objective for the Company is to maximize economic value, consistent with acceptable risk parameters, including the management of credit risk and interest rate sensitivity of invested assets, while generating sufficient after-tax income to meet policyholder and corporate obligations. The Company maintains a prudent investment strategy that may vary based on a variety of factors including business needs, regulatory requirements and tax considerations.
STRATEGIC INITIATIVES
The Pursuit of Profitable Growth
Historically, our insurance companies have only issued a few products and had limited distribution channels. Domestically, most of our historical growth came from the acquisition of assets rather than new sales. Internationally, our limited products, which were mostly endowment products, burdened us with known high levels of maturities after a certain period with limited products to replace the business. As a result, from 2017 through 2021, our total premium revenue fell by over $20 million. In 2021, we became a non-controlled company for the first time in over 20 years and under new leadership, our strategy shifted to the pursuit of long-term profitable growth through a 4-pronged strategy:
•Grow first year sales to reverse the decline in our total revenue. We do this through the introduction of new products and by expanding our distribution.
•Products. Our product development process focuses on our customer needs by developing new products tailored to our specific markets, working with partners to develop products tailored to their markets, and enhancing existing products. Our management team meets regularly to ensure we are bringing the right products to market at the right time.
•Distribution. New products help our sales force, as they can sell additional products to existing customers and offer a broader portfolio of products to entice prospective customers. A broader product portfolio also helps attract new distributors. We are also focused on implementing sales promotions and campaigns in order to align our sales consultant compensation opportunities with our premium revenue goals and our growth and retention initiatives.
•Slow the decline of premiums through retention efforts. We pay certain costs (e.g., commissions, underwriting, marketing expenses) to obtain new policyholders. First year commissions paid to our agents are significantly higher than renewal commissions. Accordingly, it is important to preserve policyholder relationships once we have issued a new policy. We are focused on improving the customer experience and policyholder retention.
•Focus on execution.
•Processes. We are implementing process improvements and new technologies not only to speed up product delivery but also to improve the experience for both our policyholders and our agents. We have also implemented new processes and technologies to help our employees work more effectively and efficiently.
•Financial and expense discipline.
We believe these factors will lead to growth and profitability. As a result of these efforts over the last few years, in 2024, our total premium revenue grew for the first time since 2017.
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CITIZENS, INC.
Status of New and Enhanced Products; Trends in Market Demand
As mentioned above, offering new and enhanced products and expanding our distribution are key to achieving our strategic goals. In 2024, we issued the highest amount of insurance ever in a year by Citizens - $1.1 billion and achieved our highest ever total direct insurance in force - $5.2 billion.
•Following the filing of 3 new products in our domestic markets in 2023, we continued growing our domestic business in 2024:
◦we became licensed in 8 additional states. CICA Domestic is licensed in 43 states, up from 35 states at 2023 year-end and up from 32 states at 2022 year-end; and
◦we expanded our domestic distribution network, growing from over 2,000 agents at December 31, 2023 to over 5,000 agents at December 31, 2024.
This led to direct first year premium revenue growth of 106% in our Life Insurance segment.
•We maintained our A.M. Best rating.
◦CICA Domestic is rated as a B++ with a "Very Strong" balance sheet. We believe this will help us expand our distribution networks and the appeal of our products to consumers.
•We introduced a new product in our international markets designed to allow policyholders with maturing endowments to use some or all of the funds to purchase a new life insurance policy. This led to increased first year premiums in the international business.
LIFE INSURANCE SEGMENT
INTERNATIONAL LIFE INSURANCE
Products
CICA International issues primarily individual whole life insurance and endowment products in U.S. dollar-denominated amounts to non-U.S. residents. The products accumulate guaranteed cash values beginning in the first policy year and provide lifetime income guarantees for an insured or for surviving beneficiaries.
In addition to death benefits, our international products have living benefit features. Most policies contain guaranteed cash values that can be used during an insured's lifetime by taking a loan or advance on the death benefit, have options for annual premium benefits, and are participating (i.e., provide for cash dividends). Our policyowners have several options with regards to the policy dividends and annual premium benefits, which include, among other things, electing to receive cash, crediting such amounts towards the payment of premiums on the policy, leaving such amounts on deposit with the Company to accumulate at a specified interest rate or assigning them to a third party, Computershare Trust Company, N.A. (an affiliate of Computershare, Inc., our transfer agent), who facilitates their purchase of our Class A common stock, through the Citizens, Inc. Stock Investment Plan (the "SIP"). The SIP is a direct stock purchase plan available to policyowners, shareholders, our employees and directors, independent consultants, and other potential investors through Computershare Trust Company, as administrator of the SIP. The Company has registered the shares of Class A common stock issuable to participants under the SIP on a Form S-3 registration statement under the Securities Act of 1933, as amended, (the "Securities Act") that is on file with the SEC. Computershare administers the SIP in accordance with the terms and conditions of the SIP, which is available on the Computershare website and as part of the Company’s registration statement on file with the SEC.
We believe positive attributes of our international insurance business typically include:
•larger face amount policies issued compared to our U.S. operations, which results in lower underwriting and administrative costs per dollar of coverage;
•high persistency (retention) and low mortality charges due to our customer demographics; and
•premiums paid annually at the beginning of each policy year rather than monthly or quarterly, which reduces our administrative expenses, accelerates cash flow and results in lower policy lapse rates than premium payment options with more frequently scheduled payments.
December 31, 2024 | 10-K 4
CITIZENS, INC.
Sales and Distribution
We sell our international products through independent marketing agencies and consultants located primarily in Latin America and the Pacific Rim. As of December 31, 2024, we had insurance policies in force in almost 80 foreign countries and receive the majority of our premiums from Colombia, Taiwan, Venezuela, Ecuador and Argentina. International direct premiums comprised approximately 89% of total direct premiums in the Life Insurance segment and 67% of our total consolidated direct premiums in 2024.
The independent marketing agencies and consultants who sell our products specialize in life insurance products. We enter into contracts with the independent marketing agencies pursuant to which they recruit, train and supervise their managers and associates in the sales and service of our products. These agencies receive commissions for products they sell and service, as well as commission overrides on the business that their agents produce and, in return for the override, they guarantee any debt their agents owe to us. Their agents also contract directly with us as independent consultants and receive commission compensation directly from us. This allows us to develop a relationship with their associates so if an agency contract is terminated for any reason, we may seek to continue the existing independent consultant marketing arrangements with the associates of such agency. Our agreements typically provide that the agencies and their agents are independent consultants responsible for their own operational expenses and are the representative of the prospective insured. Our contracts require the independent marketing agencies and consultants to understand and comply with all laws applicable to sales of our products in their country.
Competition
The life insurance business is competitive. Internationally, we compete with a number of life insurance companies, as well as with financial institutions that offer insurance products.
We face competition from (i) other insurance companies that operate in the same markets and manner as we do, (ii) local companies formed and operated in the country in which an insured resides, and (iii) other foreign companies who issue insurance policies denominated in the local currency of those countries or issue products approved by regulators of those countries. Some of these companies may have a competitive advantage over us due to their greater financial resources, histories of successful operations and brand recognition, local licensing, partnering with local insurance companies and larger marketing forces.
We believe that issuing U.S. dollar-denominated products is a key competitive advantage for us. Because premiums on our international policies are paid in U.S. dollars, cash value is accumulated in U.S. dollars, and we pay claims and benefits in U.S. dollars. We believe this provides security and stability to our policy owners and insureds, who are generally individuals in the middle- to upper-middle class in their respective countries with significant net worth and earnings, by providing:
•protection against devaluation of the policyowners' local currency;
•protection against local hyper-inflation that has historically occurred in Latin America; and
•capital investment in a more secure economic environment (i.e., the U.S.).
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CITIZENS, INC.
DOMESTIC LIFE INSURANCE
Over the last couple of years, we began our "white label" program to expand our distribution by expanding CICA Domestic's state licenses, developing new final expense and living benefit products, and filing these new products in multiple states. At December 31, 2024, we had over 5,000 agents appointed to sell these products. As a result, in the past year, we have significantly expanded our domestic distribution in the Life Insurance segment and first year premiums have more than doubled in this segment compared to 2023. In 2024, domestic direct life insurance premiums comprised approximately 11% of total direct premiums in the Life Insurance segment and 9% of our consolidated total direct premiums. The average life insurance policy face amount issued in 2024 was approximately $10,800 per policy. Due to the lower risk associated with small face amount polices, the underwriting performed on these applications is limited.
Competition
Domestically we face competition with other insurance carriers specializing in final expense insurance. We seek to compete effectively through policyholder service, price, product design, and distribution efforts. While there are insurance companies competing with us, no individual company dominates any of our life insurance markets.
The Company effectively competes with other carriers, in part, due to our ability to tailor products to individual distributors' needs.
HOME SERVICE INSURANCE SEGMENT
We operate our domestic Home Service Insurance segment through SPLIC and Magnolia. SPLIC issues final expense life insurance and critical illness products to lower-income individuals, primarily through a home service distribution model based in Louisiana. Policies issued by Magnolia are primarily burial policies which are sold and serviced through funeral homes, who are also typically the beneficiaries of the policies. Additionally, prior to June 30, 2023, we operated through Security Plan Fire Insurance Company ("SPFIC"), a limited liability casualty company that issued small face value property insurance policies covering dwelling and contents, primarily in Louisiana. We ceased operations on June 30, 2023 and dissolved SPFIC in 2024. In 2024, our Home Service Insurance segment comprised 24% of our total consolidated direct premiums.
Products
Our Home Service Insurance products consist primarily of small face amount whole life, pre-need policies, which are designed to fund final expenses for the insured (e.g., funeral and burial costs) and critical illness products. The average life insurance policy face amount issued in 2024 was approximately $12,800 per policy. Due to the lower risk associated with small face amount polices, the underwriting performed on these applications is limited.
Competition
We face competition in Louisiana, Mississippi and Arkansas from other carriers specializing in final expense insurance. We seek to compete by delivering exceptional personal service to our customers, enhancing our management team and upgrading our agent field force. We intend to continue premium growth within this segment by focusing on direct independent agent-to-consumer sales.
REINSURANCE
We follow the industry practice of reinsuring a portion of our insurance risks with unaffiliated reinsurers. In a reinsurance transaction, a reinsurer agrees to indemnify another insurer for part or all of its liability under a policy or policies it has issued for an agreed upon premium. We participate in reinsurance activities in order to minimize exposure to significant risks, limit losses, and provide additional capacity for future growth. We enter into various agreements with reinsurers that cover individual risks, group risks or defined blocks of business, primarily on a coinsurance and yearly renewable term basis.
For the majority of our international life insurance business, we generally retain the first $100,000 of risk on any one life and reinsure the remainder of the risk. Therefore, under the terms of the reinsurance agreements, the reinsurers
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agree to reimburse us for the ceded amount (i.e., the death benefit amount less our retained risk) in the event a claim is paid. The Company evaluates the maximum amount it is willing to retain from time to time and may increase its retention, which can reduce premiums ceded to our reinsurers and allow us to keep a larger portion of premiums received.
In the second quarter of 2024, CICA Domestic entered into a coinsurance agreement with RGA Reinsurance Company ("RGA") in order to provide more capacity for growth. Under this agreement (the "RGA Agreement"), CICA Domestic initially elected for RGA to reinsure 50% of its newly written final expense business, which means that we cede 50% of premiums received and benefits paid in our domestic final expense benefit to RGA.
Cessions under reinsurance agreements do not discharge our obligations as the primary insurer. In the event reinsurers do not meet their obligations under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible.
Our amounts recoverable from reinsurers represent receivables from and/or reserves ceded to reinsurers. The amount recoverable from reinsurers was $6.9 million as of December 31, 2024.
We focus on obtaining reinsurance from a diverse group of well-established reinsurers. All of our reinsurers are rated A- (Excellent) or higher by A.M. Best. We regularly evaluate the financial condition of our reinsurers and monitor concentration risk with our reinsurers.
OTHER NON-INSURANCE ENTERPRISES
Other Non-Insurance Enterprises includes the results of our parent company, Citizens, Inc., Nexo Global Services LLC, a Puerto Rico holding company ("Nexo"), Nexo Enrollment Services LLC ("NES"), a Puerto Rico company that provides services to the customers of CICA International, and our non-insurance subsidiary, Computing Technology, Inc., which primarily provides the Company's corporate-support and information technology functions to the insurance operations.
OPERATIONS AND TECHNOLOGY
Most of our operations are based at our corporate headquarters in Austin, Texas. We also conduct operations for our Home Service Insurance segment from our district offices in Louisiana, Arkansas and Mississippi, as well as our service center in Donaldsonville, Louisiana. For the international portion of our Life Insurance segment, certain operations are conducted at our office in Puerto Rico and, starting in 2024, some customer service functions are conducted in the Philippines. The Company is actively engaged in optimizing its operations by seeking opportunities to leverage the global workforce to meet the needs of its international policyholders.
We have a proprietary single, centrally-controlled, mainframe-based policy administration system ("PAS") that we use for all of our insurance companies. Our PAS performs various functions to effectively handle our insurance operations. These functions include policy set-up, administration, billing and collections, commission calculation, valuation, automated data edits, storage backup, image management and other related functions. Each company and block of business we have acquired has been converted onto our PAS. The Company is actively engaged in continued modernization of technology to invest and expand into new opportunities. This modernization allows us to bring new products to market rapidly and automate insurance interactions to enhance user experience. This investment is foundational to the Company's growth strategy as we pursue new product innovation and provides:
•our customers and agents with portals to be able to access account information 24/7;
•our policyholder service and claims representatives with a customer account-centric view of our policyholders and beneficiaries, reducing customer inquiry response time and claims processing time;
•streamline, automated processes that deliver the scalability needed for continue growth; and
•business-to-business solutions.
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CITIZENS, INC.
REGULATION
The insurance industry is heavily regulated and both Citizens and our insurance subsidiaries are subject to regulation and supervision by the U.S. states in which they do business, by U.S. federal laws, and for CICA International, by Puerto Rico.
REGULATION OF OUR INTERNATIONAL BUSINESS
Puerto Rico
CICA International, our Puerto Rico domiciled subsidiary, is regulated by the Puerto Rico Office of the Insurance Commissioner (“OIC”) and is licensed pursuant to the Puerto Rico Insurance Code (the "Insurance Code"). Although Puerto Rico is a U.S. territory, it has its own tax code and own insurance code, including a provision under its Insurance Code that allows CICA International to be established as an "international insurer" and thus export insurance to international markets. We may not insure risks of residents of Puerto Rico with this type of license and we do not issue policies to U.S. risks through CICA International.
The Insurance Code does not specifically set forth minimum capital and surplus standards, but rather requires that an insurer submit a business plan for approval to the OIC that includes proposed minimum capital and surplus. CICA International is required to maintain a minimum of $750,000 in capital and maintain a premium to surplus ratio of 7 to 1. The Insurance Code requires us to file annual U.S. GAAP financial statements with the OIC that include schedules providing information regarding premiums written and reinsurance assumed and ceded, as well as an annual actuarial certification.
In addition to compliance with the Insurance Code, CICA International must comply with other laws and regulations of Puerto Rico, most of which apply to our domestic subsidiaries as well, including the U.S. Bank Secrecy Act and other anti-money laundering laws and regulations of the United States.
Other International Regulation
Generally, all foreign countries in which we offer insurance products require a license or other authority to conduct insurance business in that country. Some of these countries also require that local regulatory authorities approve the terms of any insurance product sold to residents of that country. We operate on a non-admitted basis and are not licensed to do business in any foreign country, and we have never submitted our international insurance policies for approval to any regulatory agency. As described above, we sell our policies to residents of foreign countries through independent marketing agencies and independent consultants located in those countries and we rely on our independent consultants to comply with laws applicable to them in marketing and servicing our insurance products in their respective countries.
We have undertaken a comprehensive compliance review of risks associated with the potential application of foreign laws to our issuance of insurance policies in foreign countries. These laws vary by country. There is a lack of uniform regulation, lack of clarity in certain countries regarding application of regulations and in many cases, lack of legal precedent in addressing circumstances similar to ours. Our compliance review has confirmed certain risks related to foreign insurance laws associated with our business model, at least in certain jurisdictions, as described in detail in Part I. Item 1A. Risk Factors.
U.S. REGULATION
In the United States, insurance is primarily regulated at the state level. Our primary regulator in the U.S. is the Colorado Division of Insurance, as both Citizens and CICA Domestic are Colorado companies. We are also regulated by the departments of insurance in Louisiana (SPLIC) and Mississippi (Magnolia), as well as each of the 43 states and the District of Columbia in which we conduct insurance business. In supervising and regulating insurance companies, state insurance departments aim to protect policyholders and the public rather than investors, and enjoy broad authority and discretion in applying applicable insurance laws and regulation for that purpose. The extent of this regulation varies, but most U.S. jurisdictions have laws and regulations based upon the National Association of Insurance Commissioners ("NAIC") model rules governing the financial condition of insurers, including standards of solvency, types and concentration of investments, establishment and maintenance of reserves, credit for reinsurance and requirements of capital adequacy; and the business conduct of insurers,
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including marketing and sales practices and claims handling. In addition, statutes and regulations require the licensing of insurers and agents, the approval of most types of policy forms and related materials (such as advertising) and the approval of rates for certain types of insurance products. Insurance companies are also required to file detailed annual reports with our supervisory agencies.
In order for insurance regulators to monitor solvency, insurance companies are subject to risk-based capital ("RBC") requirements. The RBC requirement is a statutory minimum level of capital that is based on two factors - (1) the insurance company's size, and (2) the inherent riskiness of its financial assets and operations, i.e. a company must hold capital in proportion to its risk. The RBC requirement thus determines a minimum level of capital required for an insurer to support its operations and write coverage. The purpose of the RBC requirements is to identify weakly capitalized companies, which facilitates regulatory actions to ensure that the policyholders will receive the benefits promised. Regulators have the legal authority to take preventive and corrective measures depending on the capital deficiency indicated by the RBC result. If a company's ratio of total adjusted statutory capital to control level risk-based capital is above 200%, no regulatory intervention is needed. In 2024, due to our strategic plan to expand CICA Domestic's business, we entered into a capital maintenance agreement with the Colorado Division of Insurance that specifies that Citizens will infuse capital as needed to ensure that CICA Domestic's RBC ratio remains at or above 350%.
In addition to monitoring our financial condition, insurance regulatory authorities (including state law enforcement agencies and attorneys general) periodically make inquiries and regularly conduct examinations regarding compliance with insurance and other laws and regulations regarding the conduct of our insurance businesses. It is our practice to fully and consistently cooperate with such inquiries and examinations and take corrective action when warranted.
In order to sell products in any state, we first have to become licensed in that state. States have various rules for obtaining a license, including capital deposit requirements and seasoning requirements, among others. Once we are licensed in a state, most states require us to file our products for their approval before being able to sell the products. The application and product forms must comply with state insurance laws regarding policy requirements. Once an application or product is approved in that state, we must use the approved forms to sell our products. We have to file our domestic forms in both English and Spanish for separate approvals. We are also subject to laws related to our advertising and may have to file certain marketing documents with state regulators as well.
Because Citizens is a holding company that directly and indirectly owns insurance operating subsidiaries, we are also subject to regulation in our three domiciliary states that require us to furnish the respective insurance regulators with financial and other information concerning the operations of, and the interrelationships and transactions among, the companies within our holding company system that may materially affect the operations, management or financial condition of the insurers within the system. Generally, these laws and regulations require that all transactions within a holding company system between an insurer and its affiliates be fair and reasonable and that the insurer's statutory capital and surplus following any transaction with an affiliate be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. For certain types of agreements and transactions between an insurer and its affiliates, these laws and regulations require prior notification to, and non-disapproval or approval by, the insurance regulatory authority of the insurer's jurisdiction of domicile. These laws also require that a controlling party obtain the approval of the insurance commissioner of the insurance company's jurisdiction of domicile prior to acquiring or divesting control of the insurer.
The payment of dividends or other distributions to Citizens by our insurance subsidiaries is also regulated by the insurance laws and regulations of their respective state or jurisdiction of domicile. The laws and regulations of some of these jurisdictions also prohibit an insurer from declaring or paying a dividend except out of its earned surplus or require the insurer to obtain regulatory approval before it may do so. In addition, insurance regulators may prohibit the payment of ordinary dividends or other payments by our insurance subsidiaries to us (such as a payment under a tax sharing agreement or for employee or other services) if they determine such payment could be adverse to policyholders or insurance contract holders of the subsidiary.
Because we maintain sensitive data regarding our customers, we are also subject to additional state regulations in states where we do business, such as data security and state privacy laws.
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CITIZENS, INC.
While primarily regulated at the state level, our domestic business is subject to various federal laws and regulations. Some of the primary federal laws include:
•USA Patriot Act and the Bank Secrecy Act, which require us to institute certain measures to detect and prevent money laundering;
•Foreign Corrupt Practices Act, which makes it unlawful to bribe foreign officials for the purpose of obtaining or retaining business;
•Gramm-Leach-Bliley Act, which requires us to explain our information-sharing practices to our customers and to safeguard sensitive data;
•Securities Act, Securities Exchange Act and Sarbanes-Oxley Act, which establish various requirements for Citizens, as a public company, to comply with, including registration of our Class A common stock, reporting and disclosure requirements, and public company audit and internal control requirements;
Our U.S.-based insurance products and thus our businesses also are affected by U.S. federal, state and local tax laws.
HUMAN CAPITAL RESOURCES
Composition and Demographics
Our human capital is a critical component to our success. Our employees implement and drive our strategic initiatives and contribute to the success of our products (development, underwriting, pricing adequacy, customer service), promotions and processes. Our employees in our claims department are ultimately tasked with "keeping our promise". Our independent consultants and agents also drive our key goals, as they sell our insurance products and provide local services to our global base of policyholders. We also believe that we derive a great deal of strength from our diverse workforce. Fostering an equitable and inclusive workplace with diverse teams produces more creative solutions, results in more innovative products and services and is crucial to our efforts to attract, develop and retain key talent.
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As of December 31, 2024, we had 247 full-time employees and 3 part-time employees. The pie charts below illustrate the gender, racial, ethnic, and generational make-up of our total employee workforce as of such date.
Gender Composition
Racial/Ethnic Composition
Generational Composition
We determine race, ethnicity, gender, and generation based on our employees' self-identification or other information compiled to meet requirements of the U.S. government.
None of our employees are subject to a collective bargaining agreement.
We do not utilize captive employee agents to distribute our products and thus contract with over 1,000 actively producing independent consultants internationally and over 5,000 independent agencies and agents domestically to sell and service our insurance products.
In order to continue to develop, sell and administer our products, it is crucial that we continue to attract and retain both experienced employees and independent agents.
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ITEM 1A. RISK FACTORS
Item 1A. RISK FACTORS
As a smaller reporting company, we are not required to disclose information required by this Item 1A. However, we have elected to provide the following discussion of risks as we feel it is important to provide adequate information to our investors regarding the risks of investing in our securities. If any of these risks develop into actual events, our business, financial condition, results of operations or cash flows could be materially and adversely affected, and, as a result, the trading price of our Class A common stock could decline. These risk factors may also be important to understanding other statements in this Form 10-K. The following information should be read in conjunction with Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes in Part II. Item 8. Financial Statements and Supplementary Data of this report.
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
INTERNATIONAL BUSINESS RISKS
A SUBSTANTIAL PORTION OF OUR REVENUE IS GENERATED FROM INSURANCE PRODUCTS SOLD OUTSIDE OF THE UNITED STATES, WHICH SUBJECTS US TO SEVERAL RISKS.
Our sales to residents of foreign countries expose us to unknown risks related to foreign regulation, foreign currency restrictions, and political instability. A significant loss of sales in these foreign markets would have a material adverse effect on our results of operations and financial condition.
International Regulatory Risks. A substantial majority of our direct insurance premiums, approximately 67% at December 31, 2024, are from policyholders in foreign countries, primarily those in Latin America and the Pacific Rim. As described in Part I. Item 1. Business, these policies are issued by our Puerto Rico subsidiary, CICA International, which is licensed as an international insurer in Puerto Rico. Our products are sold by independent consultants who are located in the foreign countries in which the policies are sold. Generally, the foreign countries in which we offer insurance products require either us and/or our independent consultants to obtain a license or register to conduct insurance business in that country. Some of these countries also require that local regulatory authorities approve the terms and rates of any insurance product sold to residents of that country. Some of these countries have laws that state that their residents may not purchase life insurance from us or a consultant may not sell life insurance on our behalf unless we become qualified to do business in that country or unless our policies receive prior approval from their insurance regulators. Others have a "consumption abroad" model where their residents may purchase unregistered products only if they are outside of their country when the purchase is made. We do not register to do business in these countries (i.e., we are non-admitted) nor do we seek to have our international products approved by any governmental authority.
While we have undertaken a comprehensive compliance review of risks associated with the potential application of foreign laws to our sales of insurance policies in foreign countries, the laws vary by country and there is a lack of uniform regulation and lack of clarity in certain regulations and thus we face various risks associated with the application of foreign laws to these sales. There is a risk that foreign governments where we sell our products will become more aggressive in enforcing any perceived violations of their laws and seek to impose monetary fines or criminal penalties on us or our independent consultants, and/or order us to cease our sales in that jurisdiction. There is no assurance that, if a foreign country were to require that we qualify to do business in that country or submit our policies for approval by that country’s regulatory authorities, we would be able to, or would conclude that it is financially reasonable to comply with those requirements.
We have sought to mitigate the risks described above by, among other things, not locating any of our offices or assets in these foreign countries or jurisdictions, and selling policies only through independent consultants rather than our own employees. We also try to mitigate risks by relying on laws that allow citizens of some countries to buy insurance abroad or by reverse solicitation. We rely on our independent consultants to comply with laws applicable to them in marketing and servicing our insurance products in their respective countries. There is no assurance that these precautionary measures, practices and policies will partially or entirely mitigate the risks associated with the potential application of foreign laws to our sales of insurance policies in our foreign markets. Although the Company believes that these foreign regulators do not have jurisdiction over the Company and that any actions, including fines, may be unenforceable against the Company, any regulatory action could otherwise
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absorb Company time and resources (including independent consultants) away from its business operations or the Company may choose to pay such fines in order to do business in a particular country. Alternatively, the Company may determine that the risks associated with a particular market and its regulatory environment outweigh the benefits of conducting further business in that market and discontinue doing business there.
Any actions by a foreign government to enforce these laws against us could cause disruption to the marketing and sale of our policies in that country or our withdrawal from doing business in that country, which could have a material adverse effect on our premium revenue, our costs and expenses and on our results of operations and financial condition.
International Currency Risks. While we only sell U.S. dollar denominated products, currency control laws or other currency exchange restrictions in foreign countries could materially adversely affect our revenues by limiting the ability of our policyholders in such countries to pay premiums in U.S. dollars or to receive U.S. dollar benefits. Difficulties in transferring funds from or converting currencies to U.S. dollars in certain countries could cause an increase in fees and costs associated with such payments or receipt of benefits and therefore make our products less attractive to such policyholders.
International Political Risks. Many of the countries in which we operate have a history of political instability, including regime changes, political uprisings, and anti-democratic or anti-U.S. policies. The ability of people living in these countries to purchase and continue to make premium payments on our insurance policies and our ability to sell our policies in those countries through our independent consultants or otherwise may be adversely affected by political instability. Given the nature of our products, in an economic environment characterized by higher unemployment, lower personal income and reduced consumer spending, new product sales may be adversely affected. During such periods, we may also experience higher claims, longer claims duration, increase in policy lapses and/or increase in surrenders, any of which could have a material adverse effect on our results of operations or financial condition. In addition, the imposition of U.S. sanctions against foreign countries where our policyholders reside could make it difficult for us to continue to issue new policies and receive premiums from policyholders in those countries.
We face significant competition in our international markets. If we are unable to compete effectively for customers or distributors in these markets, our business, results of operations and profitability may be adversely affected.
We experience considerable competition for sales of our policies, primarily from the following types of companies, many of which have substantially greater financial, marketing and other resources than we have:
•Companies that operate in the same manner as we do and sell similar U.S. dollar-denominated products;
•Companies that are foreign to a particular jurisdiction, but register locally operated subsidiaries. These companies may offer both local jurisdiction-regulated products in local currency and regulated or offshore U.S. dollar-denominated policies. This arrangement creates a competitive advantage for these companies because they can cross-sell the U.S. dollar-denominated policies through established distributors who sell high-need local insurance policies, such as health insurance; and
•Companies who are local to a particular jurisdiction and sell local currency policies. Because the insureds reside in this country, they may have more trust for a local company.
We rely on a small number of foreign agencies, who recruit their own independent consultants, for distribution of our international products. The fact we are not a local or admitted company, regulations or licensing requirements imposed upon our Company or these consultants, may impact our ability to attract and retain effective sales representatives, who may choose to distribute products of our competitors.
We face a greater risk of money laundering activity associated with sales derived from residents of certain foreign countries.
The insurance industry is highly vulnerable to money laundering. Money laundering in the insurance industry typically involves the exploitation of various products and mechanisms to obscure the origins of illicit funds. One common method is through the purchase of insurance policies, such as life insurance, with the use of these illicit funds. Criminals may overpay premiums, surrender policies prematurely, or make fictitious claims to cycle the illicit
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funds back as legitimate payout. To combat global financial crime, governments and international authorities implement a range of anti-money laundering and countering of terrorist financing (AML/CFT) regulations that impact the insurance sector. Failure to comply with these regulations can result in penalties or heavy fines.
Some of our top international markets, such as Colombia and Venezuela, are countries that have been identified by the U.S. Department of the Treasury as jurisdictions of high risk for money laundering. Accordingly, as required by applicable U.S. laws and best business practices, we have developed and implemented an anti-money laundering, anti-terrorist financing and sanctions program that includes policies, procedures, controls, independent testing, reporting and recordkeeping requirements for deterring, preventing and detecting potential money laundering, terrorist financing, fraud and other criminal activity and have an officer of the Company responsible for managing this program. Despite our efforts to prevent money laundering through our companies, there can be no assurance that these enhanced controls will entirely mitigate money laundering risk associated with our insurance products, whether in these foreign countries or in the United States.
INSURANCE RISKS
BECAUSE MOST OF OUR REVENUE DERIVES FROM COLLECTION OF PREMIUMS ON OUR PRODUCTS AND OUR LARGEST EXPENSE IS PAYMENT OF INSURANCE BENEFITS, OUR OVERALL FINANCIAL PERFORMANCE DEPENDS UPON THE ACCURACY OF THE ASSUMPTIONS THAT UNDERLIE OUR PRODUCT PRICING. DIFFERENCES IN ACTUAL EXPERIENCE, IMPROPER EVALUATION OF UNDERWRITING RISK, MISMANAGEMENT OF CLAIMS, OR OTHER UNFORESEEN EVENTS WOULD CAUSE OUR ACTUAL RESULTS TO DIFFER FROM OUR ASSUMPTIONS, WHICH WOULD REDUCE OUR MARGINS, INCREASE OUR RESERVES AND REMEASUREMENT LOSS, NEGATIVELY AFFECTING OUR PROFITABILITY AND FINANCIAL CONDITION.
Pricing accuracy depends upon our ability to project future losses based on historical loss experience, adjusted for known trends.
In order to price products accurately, the Company must develop and apply appropriate morbidity and mortality estimates, closely monitor and timely recognize changes in trends, and project both severity and frequency of losses with reasonable accuracy to cover these risks. Pricing adequacy is necessary to generate sufficient premiums to cover our cost of sales, costs of operations (including payment of policy benefits) and to earn a profit. Pricing adequacy is subject to a number of risks and uncertainties, including, without limitation:
•availability of sufficient reliable data;
•incorrect or incomplete analysis of available data;
•uncertainties inherent in estimates and assumptions;
•selection and application of appropriate rating formulae or other pricing methodologies;
•adoption of successful pricing strategies;
•prediction of policyholder life expectancy and retention;
•unforeseen events that may cause our estimates to be wrong (such as the COVID-19 pandemic);
•unanticipated legislation, regulatory action or court decisions; or
•unexpected changes in interest rates or inflation.
Such risks may result in the Company’s pricing being based on outdated, inadequate, or inaccurate data, or inappropriate analyses, assumptions, or methodologies, and may cause the Company to estimate incorrectly future changes in the frequency or severity of claims. As a result, the Company could underprice risks, which would negatively affect the Company’s margins, or it could overprice risks, which could reduce the Company’s volume and competitiveness.
Additionally, the actuarial assumptions that underlie our reserves are based upon our best estimates of mortality, lapses, morbidity and discount rates. Our results will be affected to the extent there is a variance between our actuarial assumptions and actual experience. Domestic growth in the Life Insurance segment has significantly expanded in the last 2 years. Our current profitability is affected by the level of reserves we have to hold for this new business, and how closely actual experience matches our actuarial assumptions. The actuarial assumptions that underlie our reserves are based upon our best estimates and are inherently more difficult to predict for a new product line. Actuarial assumptions are continually monitored and updated at least annually to reflect overall experience as well as emerging trends.
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The Company’s success depends on its ability to accurately underwrite risks in order to charge adequate premiums to policyholders.
The Company’s financial results largely depend on the Company’s ability to underwrite and set premiums accurately for the risks it faces. Failure to adequately underwrite health risks (i.e., to charge lower premiums than should be charged based on an individual’s health or to accept risks of extremely unhealthy individuals) or other types of risks (e.g., politically exposed risks) could negatively impact profitability as we could pay higher benefits than our products are priced for.
Historically, we have fully underwritten most of our products in order to properly evaluate risk. For many of our newer products, primarily in the U.S., we utilize a “simplified” underwriting process where applicants generally must answer some health-related questions, but do not have to take a life insurance medical exam or submit supporting documentation. The underwriting decision is based on questions answered on the application and may be supplemented with additional medical claims history and lab data information that we get from third parties.
Any shortcomings in the process used to evaluate and price our policies, or significant inaccuracies in the life expectancy estimates relating to those policies, could have a material and adverse effect on our results of operations and financial condition.
Policyholder claims is one of our largest expenses. Mismanagement of claims handling or increased fraudulent claims could negatively impact our costs and financial condition.
Proper claims handling is critical to managing our benefit expenses. Many factors can affect the Company’s ability to pay claims accurately, including the following:
•the training, experience, and skill of the Company’s claims representatives;
•the extent of fraudulent claims and the Company’s ability to recognize and respond to such claims; and
•the Company’s ability to develop or select and implement appropriate procedures, technologies, and systems to support claims functions.
The Company’s failure to pay claims fairly, accurately, and in a timely manner, to recognize fraudulent claims, or to deploy claims resources appropriately, could result in unanticipated costs, lead to material litigation or regulatory fines, undermine customer goodwill and the Company’s reputation in the marketplace, impair its brand image and, as a result, materially and adversely affect its competitiveness, financial results, prospects, and liquidity.
Higher than expected policyholder claims related to unforeseen events may negatively impact our premium revenues and increase our benefits and expense costs, thus negatively affecting our financial condition.
Our life and health insurance products are particularly exposed to risks of catastrophic mortality, such as a pandemic or other events that result in a large number of policyholder claims. In addition, the occurrence of such an event in a concentrated geographic area could have a severe disruptive effect on our workforce and business operations. The likelihood and severity of such events cannot be predicted and are difficult to estimate. In such an event, the impact to our operations could have a material adverse impact on our ability to conduct business and on our results of operations and financial condition, particularly if those problems affect employees performing operational tasks and supporting computer-based data processing, or destroy the capability to transmit, store, and retrieve valuable data. In addition, in the event that a significant number of our management were unavailable following a disaster, the achievement of our strategic objectives could be negatively impacted.
Lower than expected policyholder retention can negatively affect our business operations and liquidity.
A primary liquidity concern is the risk of unanticipated or extraordinary early policyholder withdrawals or surrenders. Some of our insurance policies include provisions, such as surrender charges, that help limit and discourage early withdrawals. However, early withdrawal and surrender levels may differ from anticipated levels for a variety of reasons, including changes in economic conditions, changes in policyholder behavior or financial needs, changes in relationships with our independent consultants, efforts by foreign governments to tax policyholders or increases in surrenders of policies that no longer remain subject to surrender charges. These changes in surrender activity may result in remeasurement gains or losses which could increase volatility in our results of operations.
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In addition, we face potential liquidity risks if policyholders with mature policies elect to receive lump sum distributions at greater levels than anticipated. Our whole life and endowment products provide the policyholder with alternatives once the policy matures. The policyholder can choose to take a lump sum payout or leave the money on deposit at interest with the Company. The Company has a significant amount of aging endowment products that have begun reaching their maturities and policyholder election behavior is not known. It is uncertain how policyholders will react in response to these maturities. If a large number of policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities.
If we experience unanticipated early withdrawal or surrender activity or greater than expected lump sum distributions of endowment maturities and we do not have sufficient cash flow from our insurance operations to support payment of these benefits, we may have to sell our investments in order to meet our cash needs or be forced to obtain third-party financing. The availability of such financing will depend on a variety of factors, such as market conditions, the availability of credit in general or more specifically in the insurance industry, the strength or weakness of the capital markets, the volume of trading activities, our credit capacity, and the perception of our long- or short-term financial prospects if we incur large realized or unrealized investment losses or if the level of business activity declines due to a market downturn. Therefore, if we are forced to sell our investments on unfavorable terms or obtain financing with unfavorable terms, it could have an adverse effect on our liquidity, results of operations and financial condition.
Reinsurance may not be available or affordable, or reinsurers may be unwilling or unable to meet their obligations under our reinsurance contracts, which may adversely affect our results of operations or financial condition.
As part of our overall risk management and capital management strategies, we purchase reinsurance for certain risks. Market conditions beyond our control determine the availability and cost of reinsurance. Any decrease in the amount of reinsurance will increase our risk of loss and may impact the level of capital requirements for our insurance subsidiaries, and any increase in the cost of reinsurance will, absent a decrease in the amount of reinsurance, reduce our results of operations. Accordingly, we may be forced to incur additional expenses for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms, which may adversely affect our ability to write future business, result in the assumption of more risk with respect to the policies we issue, and increase our capital requirements. The collectability of our reinsurance recoverable is primarily a function of the solvency of the individual reinsurers. We cannot provide assurance that our reinsurers will pay the reinsurance recoverable owed to us or that they will pay these recoverables on a timely basis. The insolvency of a reinsurer or the inability or unwillingness of a reinsurer to comply with the terms of a reinsurance contract may have an adverse effect on our results of operations or financial condition.
THE DISTRIBUTION OF OUR PRODUCTS THROUGH INDEPENDENT CONSULTANTS AND AGENCIES REDUCES OUR CONTROL OVER SALES AND DISTRIBUTION AND THUS SUBJECTS US TO CERTAIN RISKS THAT COULD NEGATIVELY IMPACT OUR REVENUES, OUR IN-FORCE BUSINESS, OUR BENEFITS AND EXPENSE COSTS OR OUR REPUTATION.
Sales of our insurance products could decline if we are unable to establish and maintain relationships with independent marketing agencies, independent consultants and agents.
We depend almost exclusively on the services of a small number of independent consulting agencies in our international markets and on independent marketing organizations, general agencies and independent agents in our domestic markets for the distribution of our products. The loss of any of these producers could negatively affect our sales and policy retention.
Significant competition exists among insurers in attracting and maintaining marketers of demonstrated ability. Some of our competitors may offer better compensation packages or commissions or induce agents to sell their products due to their broader product offerings, more distribution resources, better brand recognition, more competitive pricing, lower cost structures or greater financial strength or claims paying ratings than we have. We compete with other insurers for marketing agencies, agents and independent consultants primarily on the basis of our compensation, products and support services. Any reduction in our ability to attract and retain effective sales representatives could materially adversely affect our revenues, results of operations and financial condition.
Additionally, we are subject to a risk of our independent consultants leaving our Company to sell products for a competitor and inducing our policyholders to lapse or surrender their policies, or otherwise terminate their relationship with us, in order to purchase products from the independent consultant with a competitor company.
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Because we sell our products through independent agents, we have less control over the manner in which they sell our products.
As described above in Part I. Item 1. Business - Regulation, insurance regulators focus on market conduct, i.e., the way we sell our products. In the United States, there are several insurance regulations and federal laws that limit how we sell our products, such as the Telephone Consumer Protection Act ("TCPA"), which governs how our agents can contact customers or potential customers via telephone and text. While we expect our agents to comply with their contractual obligations to us and laws such as the TCPA, we have limited control over how they conduct their business. If violations, such as TCPA violations, were attributed to us, we could incur significant fines and if attributed to our agents, may cause them to stop selling our products. Additionally, improper conduct by the agents who sell our products could negatively impact our business reputation.
REGULATORY RISKS
INSURANCE IS A HIGHLY REGULATED BUSINESS. REGULATIONS VARY FROM JURISDICTION TO JURISDICTION AND MAY CHANGE FROM TIME TO TIME. THESE REGULATIONS AFFECT OUR OPERATIONS AND CHANGES COULD NEGATIVELY IMPACT OUR CASH FLOW, THE RESULTS OF OUR OPERATIONS, OUR LIQUIDITY AND OUR FINANCIAL CONDITION.
In addition to the legal risks related to our international operations discussed above in this Item 1A, Risk Factors, we are subject to risks related to the laws and regulations in the jurisdictions where we are domiciled and registered to do business, including Puerto Rico and various U.S. jurisdictions. These material risks are described below.
We are licensed in and subject to regulation in Puerto Rico, 43 U.S. states and Washington, D.C. Each of these jurisdictions have their own licensing and other requirements to do business in such jurisdiction. Failure to comply with all of these rules and regulations could cause us to lose a license, have a license suspended, or subject us to large fines, all of which would negatively impact our ability to do business.
In the U.S., we are primarily subject to regulation at the state-level. CICA International is registered in Puerto Rico and is subject to regulation by the Puerto Rico Office of the Insurance Commissioner ("OIC"). As a Puerto Rico International Insurer, CICA International is governed by Chapter 61 of the Puerto Rico Insurance Code. Additionally, CICA International must comply with other laws and regulations of Puerto Rico, most of which apply to our domestic subsidiaries as well, including U.S. federal laws such as the Bank Secrecy Act.
The OIC and most U.S. insurance regulatory authorities have broad discretion to grant, renew, suspend and revoke licenses and product approvals. Failure to comply with a complex landscape of rules and regulations that apply to us could preclude or temporarily suspend us from carrying on some or all of our activities or result in substantial penalties. If we are unable to maintain all required licenses and approvals, or if our insurance business is determined not to comply fully with the wide variety of applicable laws and regulations and their interpretations, our revenues, results of operations and financial condition and our reputation could be materially adversely affected.
Our insurance subsidiaries are subject to minimum capital and surplus requirements, and any failure to meet these requirements could subject us to regulatory action or other restrictions, including ceasing business.
The capacity for an insurance company's growth in premiums is partially a function of its required statutory surplus. Maintaining appropriate levels of statutory surplus, as measured by statutory accounting practices prescribed or permitted by a company's jurisdiction of domicile, is the most important solvency measure for insurance regulatory authorities. Failure to maintain required levels of statutory surplus could result in increased regulatory scrutiny and enforcement action by regulatory authorities.
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Our insurance subsidiaries are subject to minimum capital and surplus requirements in the U.S. and Puerto Rico. If we fail to meet these standards and requirements, our various regulators may require specified actions to be taken, including without limitation:
•restricting distributions from our subsidiaries to Citizens; or
•requiring Citizens to contribute additional capital to a subsidiary; or
•requiring Citizens to enter into a guaranty or other agreement to contribute capital to such subsidiary under certain circumstances;
•requiring the applicable insurance company to stop selling new business; or
•as a last resort, the regulator may take over the subsidiary
all of which could have a material and adverse impact on the Company’s results of operations and financial condition.
In March of 2024, Citizens and the Colorado Division of Insurance entered into a capital maintenance agreement that specifies that Citizens will infuse capital as needed to ensure that CICA Domestic's RBC remains above 350%. Any required capital contribution could negatively impact our capital resources and liquidity.
In our CICA Domestic business, we pay advance commissions on some of our insurance products, meaning we pay an agent a portion of their first year commission immediately upon sale of a policy, rather than "as earned", or when premiums are received by us. On a statutory basis, commission advances are non-admitted assets, which means that our expenses are increased and our statutory capital reduced until the commissions are recouped from premiums paid. This could cause us to have to contribute extra capital to CICA Domestic to maintain the required level of capital and surplus. Additionally, rapid growth in first year sales of these products creates a significant increase in commission payments, which reduces our available cash, negatively affecting our liquidity. We may seek options, such as loans at the holding company level (from the Credit Facility or otherwise) that would allow us to reduce the liquidity risk should CICA Domestic's commission payments exceed current resources or require additional capital contributions from Citizens. If we are unable to borrow money to contribute capital to CICA Domestic, we could be exposed to cash flow strain.
Citizens is a holding company that has minimal operations of its own and depends on the ability of our insurance subsidiaries to pay dividends or make service payments to us in sufficient amounts to fund our operations. If they cannot make such payments, Citizens may need to sell investments or seek external capital to cover its operational costs.
As a holding company, our assets consist of the capital stock of our subsidiaries, cash and investments. Accordingly, we rely primarily on statutorily permissible payments from our insurance subsidiaries, principally through dividends or service agreements we have with our subsidiaries, to meet our working capital needs. As discussed above, the ability of our insurance subsidiaries to make payments to us is subject to regulation by the states and jurisdictions in which they are domiciled, and in addition to maintaining minimum capital and surplus ratios, these payments depend primarily on regulatory approval of dividend payments and approved service agreements between us and these subsidiaries.
Because a primary goal of insurance regulations is to protect policyholders, claims of our subsidiaries' creditors, including policyholders, have priority with respect to the assets and earnings of the subsidiaries over the claims of other creditors (including us) and Citizens' shareholders. If any of our subsidiaries become insolvent, liquidates or otherwise reorganizes, our policyholders will have a priority to receive the assets of such subsidiary and Citizens may have no rights to receive cash or other assets of such subsidiaries.
If our internal sources of liquidity prove to be insufficient to cover our holding company operations, we may have to sell investments earlier than we want to sell them or in less than favorable market conditions, or we may have to seek external sources of capital. In May 2024, we renewed our Credit Facility with Regions Bank for an additional three years. See Part IV. Item 15. Note 8. Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of the Credit Facility. To date, we have not utilized the Credit Facility, but if internal sources of capital are not sufficient to meet our operating needs, we may need to utilize the Credit Facility or increase the borrowing availability under the Credit Facility. Borrowing money, increasing our borrowing availability under the Credit Facility or obtaining financing for even a small amount of capital could be challenging or expensive in unfavorable market conditions and during periods of economic uncertainty. The availability of financing
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will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to the financial services industry, and the possibility that customers or lenders could develop a negative perception of our financial prospects. We may also need to raise capital through issuing our stock. Raising capital in unfavorable market conditions could increase our interest expense or negatively impact our shareholders through dilution of their common stock ownership of the Company.
FINANCIAL RISKS
Changes in accounting standards may adversely affect our reported results of operations and financial condition.
Our consolidated financial statements are subject to the application of GAAP in the U.S., which is periodically revised and/or expanded. Accordingly, we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board ("FASB") and the National Association of Insurance Commissioners ("NAIC"). Updates or revisions, including underlying assumptions, projections, estimates or judgments/interpretations by management, could have a material adverse effect on our business, financial condition and results of operations. In addition, the required adoption of new accounting standards may result in significant incremental costs associated with initial implementation and ongoing compliance. See Part IV. Item 15. Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements contained herein for additional information regarding accounting updates.
Unexpected losses in future reporting periods may require us to record a valuation allowance against our deferred tax assets.
Under U.S. GAAP, we are required to evaluate our deferred tax assets ("DTA") quarterly for recoverability based on available evidence. This process involves management's judgment about assumptions, which are subject to change from period to period due to tax rate changes or variances between our projected operating performance and our actual results. Ultimately, future adjustments to the DTA valuation allowance, if any, will be determined based upon changes in the expected realization of the net deferred tax assets. The realization of the deferred tax assets depends on the existence of sufficient taxable income in either the carry back or carry forward periods under applicable tax law. Due to significant estimates utilized in establishing the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we may be required to record a valuation allowance in future reporting periods. Such an adjustment could have a material adverse effect on our results of operation and financial condition.
A ratings downgrade or other negative action by a rating agency could materially affect our business, financial condition, and results of operations.
A.M. Best reviews CICA Domestic and publishes its financial strength rating as an indicator of our ability to fulfill our contractual obligations. This rating is important to maintaining public confidence in our insurance products. A downgrade or other negative action by A.M. Best with respect to the financial strength rating of CICA Domestic could negatively affect us by limiting or restricting the ability of CICA Domestic to attract independent insurance agencies to distribute our products or reduce the attractiveness of our products to consumers.
ECONOMIC ENVIRONMENT RISKS
INVESTMENT INCOME IS A MATERIAL PORTION OF OUR TOTAL REVENUES. CHANGING FINANCIAL CONDITIONS SUCH AS MARKET VOLATILITY, CHANGES IN INTEREST RATES, OR INFLATION MAY ADVERSELY AFFECT OUR REVENUES, OUR RESULTS OF OPERATIONS AND OUR FINANCIAL CONDITION.
Global or regional changes in the financial markets or economic conditions could adversely affect our business in many ways, including the following:
•Inflation, recession, an increase in unemployment rates or declines in consumer confidence could lead people to conserve cash, thereby causing a decrease in new sales and renewal premiums, or an
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increase in surrenders and lapses, which would cause a decline in our premium revenue or increase in benefit expenses paid out.
•Market volatility, specifically declining equity markets, negatively impact the fair market value of our equity securities, leading to investment-related losses that negatively affect our GAAP operating revenue and profitability.
•We are subject to credit risk in our investment portfolio. Defaults by third parties in the payment or performance of their obligations under these securities could reduce our investment income or result in the recognition of realized losses. Additionally, downgrades in the bonds in our portfolio may result in the recognition of credit related allowances and cause us to reduce the carrying value of our investment portfolio. Any event reducing the value of our securities on an other than temporary basis may have a material adverse effect on our business, results of operations, or financial condition. The decision of whether to record a credit loss impairment is determined by our assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability as well as our ability and intent to hold the securities to recovery or maturity. There can be no assurance that we have accurately assessed the level of impairments taken.
•Low or declining interest rates could negatively affect us for many reasons, including:
◦Our fixed maturity investment portfolio is primarily invested in callable securities. As interest rates remained ultra-low for a decade until 2022, many of these securities were called and we had to reinvest in lower interest rate bonds, leading to reduced net investment income and low yields.
◦Some of our products, principally endowment products and traditional whole life insurance with annuity riders, expose us to the risk that decreases in interest rates will reduce our "spread", or the difference between the amounts we are required to pay under our contracts to policyholders and the rate of return we are able to earn on our investments intended to support obligations under the contracts.
◦An interest or discount rate is used in calculating reserves for our insurance products. We set our reserve discount rate assumptions based on our current and expected future investment yield for assets supporting the reserves, considering current and expected future market conditions. If the discount rate assumed in our reserve calculations is higher than our future investment returns (due to lower interest rates), our invested assets will not earn enough investment income to support our future benefit payments. In that case, we may be required to record additional liabilities and/or increase our capital contributions to our insurance subsidiaries in the period this occurs.
•Rising interest rates may negatively affect us as follows:
◦Rising interest rates typically reduce the market values of fixed income assets, as the interest payments on such assets become less competitive relative to newer high rate fixed income instruments. This leads to material unrealized losses and negatively affects our stockholders' equity.
◦Policies may become less attractive to our policyholders in a rising interest rate environment. They may surrender their policies or make early withdrawals to increase their returns, requiring us to liquidate investments and realize an actual loss.
•Some of our investments, such as mortgage-backed and other asset-backed securities, carry prepayment risk. As interest rates increase, the likelihood of prepayment is lower, as the issuer will want to make payments based on the lower interest rates. If the repayment of principal occurs later than we expected, our cash flow could be negatively impacted. As interest rates decrease, issuers are more likely to pre-pay, which could cause us to have to re-invest the pre-paid cash at lower interest rates, reducing our yields and net investment income.
CYBERSECURITY AND TECHNOLOGY RISKS
THE COMPANY RELIES ON OUR INFORMATION TECHNOLOGY SYSTEMS, AND THE DATA MAINTAINED WITHIN THOSE SYSTEMS, TO MANAGE MANY ASPECTS OF OUR BUSINESS. CYBERSECURITY RISKS, THE FAILURE OF OUR SYSTEMS TO OPERATE PROPERLY AND/OR THE FAILURE TO MAINTAIN THE CONFIDENTIALITY, INTEGRITY, AND AVAILABILITY OF POLICYHOLDER AND CLAIMS DATA, INCLUDING
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PERSONAL IDENTIFYING INFORMATION, COULD RESULT IN A MATERIALLY ADVERSE EFFECT ON OUR BUSINESS, REPUTATION, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our failure to maintain effective information systems could adversely affect our business.
Our policyholder administration system allows us to administer almost all of our business, including issuing policies, crediting premiums to such policies, and payment of commissions to our agents. We must maintain and enhance our existing system and develop and integrate new information systems in a cost-effective manner to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and changing customer preferences. If we do not maintain adequate systems, we could experience adverse consequences, including inability to accept new applications or issue new products, inadequate information on which to base pricing, underwriting and reserve decisions, regulatory problems, failure to meet prompt payment obligations, increases in administrative expenses and loss of customers. Our failure to maintain effective and efficient information systems, or our failure to consolidate our existing systems could have a material adverse effect on our results of operations and financial condition.
Our primary policy administration system is a mainframe-based, legacy-type system that requires an ongoing commitment of resources to maintain current standards. Our system utilizes proprietary code requiring highly skilled personnel. Due to the unique nature of our proprietary operating environment, we could have difficulty finding personnel with the skills required to provide ongoing system maintenance and development as we seek to keep pace with changes in our products and business models, information processing technology, evolving industry and regulatory standards and policyholder needs.
We are continuously evaluating and enhancing systems and creating new systems and processes as our business depends on our ability to maintain and improve our technology. Due to the complexity and interconnectedness of our systems and processes, these changes, as well as changes designed to update and enhance our protective measures to address new threats, increase the risk of a system or process failure or the creation of a gap in our security measures. Any such failure or gap could adversely affect our business operations and results of operations.
An information technology systems failure could also interfere with our ability to comply with financial reporting and other regulatory requirements, exposing us to potential disciplinary action by regulators.
A cyber attack or other security breach could result in the unauthorized disclosure or loss of confidential data, damage our reputation or relationships, and expose us to significant financial and legal liability, which may adversely affect our business, results of operations, or financial condition.
We collect, maintain and use information, including proprietary and personally identifiable information ("PII"), of our applicants, policyholders, independent agents and others. As part of our normal business operations, we engage third-party providers, such as companies who print and mail our policies and premium notices, data programmers, marketing companies, and agents, who may also collect, store, access, process, and transmit this PII. Various federal and state laws, as well as laws of the countries in which our policyholders reside, address the use and disclosure of PII.
We devote significant resources and employ security measures to help protect our information technology systems and confidential information, including PII, and we have programs in place to detect, contain, and respond to cyber security incidents. We also have a stringent process to analyze the systems of our third-party vendors and partners who may collect and/or have access to our PII. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we and our third-party providers may be unable to anticipate these techniques or implement adequate preventative measures. In addition, hardware, software, or applications we develop or procure from third parties or through open source solutions may contain defects in design or manufacture or other problems that could unexpectedly compromise our information security. Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, or other cyber attacks, computer viruses, malicious codes, and similar means of unauthorized and destructive tampering.
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We and our third-party providers may experience information security incidents from time to time. There is no assurance that our security systems and measures will be able to prevent, mitigate, or remediate cyber attacks. A successful penetration or circumvention of the security of our information technology systems, or those of third parties with whom we do business, could cause serious negative consequences for us, including significant disruption of our operations, unauthorized disclosure or loss of confidential information, harm to our brand or reputation, loss of customers and revenues, violations of privacy and other laws, exposure to litigation, monetary damages, regulatory enforcement proceedings, fines, and potentially criminal proceedings and penalties. If we are unaware of the incident for some time after it occurs, our exposure could increase. In addition, the costs to address or remediate systems disruptions or security threats or vulnerabilities, whether before or after an incident, could be significant. As we continue to build our digital capabilities and focus on enhancing the customer experience, the amount of information that we retain and share with third parties is likely to grow, increasing the cost to prevent data security breaches and the cost and potential consequences of such breaches.
Although we have insurance against some cyber risks and attacks, we may be subject to litigation and financial losses that exceed our policy limits, are subject to deductibles or are not covered under any of our current insurance policies.
The failure of our business recovery and incident management processes to resume our business operations in the event of a catastrophe, an epidemic, a cyber attack, or other event could adversely affect our profitability, results of operations, or financial condition.
As mentioned above, we rely on our technology systems to operate our business. In the event of a cyber attack, cyber security breach or other information technology systems failure, whether due to a disaster such as a natural catastrophe, an epidemic, a terrorist attack, or war, the inability to use our policy administration system and other information systems, or an unanticipated problem with our disaster recovery systems, would have a material adverse impact on our ability to conduct business and depending on how long the inability to use such systems lasts, on our results of operations and financial condition.
RISKS RELATED TO HOLDING OUR SECURITIES
The number and location of our shareholders may make it difficult to obtain approval of certain corporate actions.
Because we allow our policyholders to use their policy dividends to purchase our Class A common stock through our SIP, we have almost 83,000 shareholders and approximately 40% of our shareholders hold less than 100 shares each. Many of these shareholders are located in Latin America and the Pacific Rim, where most of our policies are sold, and English may not be their native language. We believe that because of this, we typically have low voter turn-out at our annual meetings and therefore any proposal, such as one related to a merger or an acquisition of our Company, or an amendment to our articles of incorporation, that may require the affirmative vote of a majority of the outstanding shares of our Class A common stock, may be difficult to approve.
Our Class A common stock is not registered in any foreign country.
As mentioned above, a significant portion of our Class A common stock has been purchased under the SIP by foreign holders of life insurance policies. The Class A common stock sold under the SIP is registered with the SEC pursuant to a Form S-3 registration statement under the Securities Act of 1933 but is not registered under the laws of any foreign jurisdiction. If a foreign securities regulatory authority were to determine the offer and sale of our Class A common stock under the SIP was not allowed under applicable laws and regulations of its jurisdiction, such authority may issue or assert a fine, penalty or cease and desist order against our offer and sale of Class A common stock in that foreign jurisdiction. There is a risk our Class A common stock price could be negatively impacted by a decrease in participation in the SIP.
Applicable insurance laws in the jurisdictions where our insurance subsidiaries are domiciled may discourage takeovers and business combinations that our shareholders might consider to be in their best interests.
Insurance laws in the jurisdictions in which our insurance subsidiaries are domiciled require regulatory actions for certain transactions, such as a merger or acquisition of our Company, that our shareholders might consider in their
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best interests. To the extent the interests of our policyholders and stockholders conflict, the insurance regulators consider the best interests of policyholders over the best interests of our shareholders. As a result, our shareholders may be prevented from receiving the benefit from any premium to the market price of our Class A common stock that may be offered by a bidder in a takeover context or such regulatory approval requirement may delay, deter, render more difficult or prevent a takeover attempt or a change in control.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
Item 2. PROPERTIES
We lease our principal office at the Domain in Austin, Texas to service all business entities and operations. We lease space in Puerto Rico for CICA International and in Louisiana, Arkansas and Mississippi related to our Home Service Insurance operations. We also own properties in Louisiana related to our Home Service Insurance operations.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. LEGAL PROCEEDINGS
In the first quarter of 2024, a jury trial was held in the “trade secret lawsuit”. The trade secret lawsuit was filed in 2018 by Citizens, CICA Life Ltd. (Bermuda) and CICA Life Insurance Company of America (collectively, the “Citizens Companies,” “we,” "us" or "our") against certain former employees and independent consultants who we alleged unlawfully took Citizens’ confidential information in order to unfairly compete with us. Our claims against these parties included various unfair competition, tortious interference, breach of contract and other related claims.
As previously disclosed, the jury found that Citizens should pay Alexis Delgado and Carlos Nalsen Landa, former independent consultants, approximately $1.3 million for “money had and received”, an equitable theory that claimed that the Citizens Companies would be unjustly enriched if they didn’t pay past and future commissions to Delgado and Landa. Additionally, the trial court awarded defendants Michael P. Buchweitz and Randall Riley approximately $3.5 million of their legal fees incurred during the trade secret lawsuit. On August 16, 2024, the judge signed a Final Judgment reflecting the jury decision and the court award of the legal fees. We do not believe the jury properly found that Delgado or Landa were entitled to any prior or future commissions as there was no evidence that we actually held any amount of commissions that they claim they should have received. We also do not believe that Riley or Buchweitz are entitled to legal fees because they were found to have breached the contracts whose fee shifting provisions they sought to invoke.
On September 17, 2024, we filed an appeal bond with the trial court in order to stay any execution of the judgment against us.
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We have appealed the judgment against us and the appeal is currently pending in the Court of Appeals, Third District of Texas, case number 03-24-00745-CV.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 5(a)
Market Information. Our Class A common stock is traded on the New York Stock Exchange ("NYSE") under the symbol CIA. Our Class B common stock is not registered with the SEC nor traded on any exchange. We hold 100% of our Class B common stock in treasury and thus there are no Class B shares outstanding.
Holders. The number of stockholders of record as of March 10, 2025 was as follows:
• Class A Common Stock - 82,505
• Class B Common Stock - -
Dividend Policy. We have never paid cash dividends on our Class A or B common stock and do not expect to pay cash dividends in the foreseeable future, as it is our policy to retain earnings for use in the operation and expansion of our business.
Securities Authorized for Issuance Under Equity Compensation Plans. See Part IV. Item 15. Note 13. Stock Compensation for equity compensation plan information.
Recent Sales of Unregistered Securities; Use of Proceeds. None.
Item 5(c)
Issuer Purchases of Equity Securities. None.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [RESERVED]
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of this Annual Report on Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.
OVERVIEW
For over 55 years, Citizens has been fulfilling the needs of our policyholders and their families by providing insurance products that offer both living and death benefits. We conduct insurance related operations through our insurance subsidiaries, which provide benefits to policyholders globally. We specialize in offering primarily individual whole life insurance, endowment products and final expense insurance in niche markets where we believe we can optimize our competitive position.
As an insurance provider, we collect premiums on an ongoing basis from our policyholders and invest the majority of the premiums to pay future benefits, including claims, surrenders and policyholder dividends. Accordingly, the Company derives its revenues principally from: (1) life insurance premiums earned for insurance coverages provided to insureds in our two operating segments - Life Insurance and Home Service Insurance; and (2) net investment income. In addition to paying and reserving for insurance benefits that we pay to our policyholders, our expenses consist primarily of the costs of selling our insurance products (e.g., commissions, underwriting, marketing expenses), operating expenses and income taxes.
Objective of our Management's Discussion and Analysis
We refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations as our “MD&A”. The objective of our MD&A is to provide investors with a succinct analysis of the Company's financial performance from management's perspective. We start by discussing how industry developments and economic circumstances in general (e.g., interest rate environment) affected or could affect our financial performance and then discuss how certain events specifically impacted our business. We summarize our financial highlights and discuss the factors that we believe drive our operating results. We then discuss in more detail our results of operations for the year ended December 31, 2024 so an investor or potential investor understands the various line items of our profit and loss statements from management’s perspective. Since our investments are one of two principal sources of our revenues, we describe them in detail. Finally, we discuss our capital resources and liquidity so investors better understand how those resources are utilized and how we are able to meet our cash needs.
Throughout the MD&A, we describe how we view the Company and which matters we believe are reasonably likely to affect future operations. We describe our priorities for the business in Part I. Item 1. Business - Strategic Initiatives and in the MD&A, we describe how we performed on those initiatives and any known trends or uncertainties that might impact our ability to achieve our goals.
ECONOMIC AND INSURANCE INDUSTRY DEVELOPMENTS
Over the last decade, life insurers have faced numerous disruptions as an industry, including profitability challenges driven by low interest rates, a global pandemic, high inflation followed by a rapid rise in interest rates, volatility in equity markets, and geopolitical uncertainty. These significant trends and developments have and are impacting our business and industry as follows.
•Increase in Interest Rates; Volatility in Equity and Credit Markets; Inflation. The material uptick in interest rates over the past few years has benefited the life insurance sector with respect to increased yields and higher net investment income. However, this benefit was offset by a move to material unrealized loss positions on fixed-income portfolios.
Inflation has also impacted our industry over the past few years. As the price of energy and food rises, customers have less discretionary income to spend on insurance products. As the inflationary environment continues, the industry may see a rise in the number of policy lapsing, especially among lower- and middle-income customers.
•Sustained Low Interest Rate Environment Prior to 2022. Market interest rates are a key driver of our results. The multi-year sustained low interest rate environment significantly reduced the overall
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yield on investments, as regulations require that the vast majority of a life insurance company's portfolio consist of fixed income securities, which are primarily callable. As interest rates declined, these fixed income securities were called and had to be re-invested in lower rate investments. This has reduced and may continue to reduce profit margins for life insurers:
◦by reducing the spread between guaranteed interest rates credited to policyholders and interest earned on supporting assets. As older endowment and annuity products are maturing, the guaranteed interest rates may be higher than current yields;
◦by surrendering or lapsing products sold during the last several years with lower interest rate guarantees, as customers look to invest in higher interest rate products; or
◦because products may have been priced with assumptions of higher interest rates (and higher interest earned on supporting assets), life insurance companies may have to increase reserves or trigger loss recognition that could accelerate amortization of COIA.
•Availability of Reinsurance. Reinsurance market dynamics including increased cybersecurity concerns, significant weather-related losses, pandemic losses, and similar to the life insurance industry, economic-related market losses, have led to a decline in the availability of reinsurance, tighter terms (such as, for example, pandemic exclusions) and/or increased reinsurance prices. While we currently cede a limited amount of our primary insurance business to reinsurers, we may encounter difficulty in obtaining reinsurance in the future, forcing us to resort to a more expensive reinsurance market. If we are unable to obtain affordable reinsurance coverage, this may impact our net exposures and the number of underwriting commitments.
•Technology Adoption. Innovation and digital development strategies, including the use of generative AI, continue to evolve and impact all industries, including the insurance industry. The insurance industry is focused on digitizing distribution channels and empowering agents with advanced digital capabilities. Access to real-time data has streamlined the way we underwrite our products. The rapid development of artificial intelligence and the demand for fee-based, value-added services are challenging our industry. Therefore, it is critical that we embrace these changes for the benefit of our policyholders, agents, employees and stockholders.
EVENTS THAT IMPACTED OUR BUSINESS
From time to time, certain events may affect our business in ways that cause current or future results to differ from past results. In addition to factors described in Part I. Item 1A. Risk Factors, the following events impacted our results of operations or financial condition.
Continued Elevated Interest Rates
To combat the inflation that began as a result of the COVID-19 pandemic, interest rates rose significantly starting in 2022 after being ultra-low for almost a decade. In just a 16-month span starting in March 2022, the Federal Open Market Committee of the Federal Reserve lifted their key benchmark rate from a near-zero percent to a 22-year high of 5.25% - 5.5%. Higher interest rates typically reduce the market value of fixed income assets, as the interest payments from existing fixed income assets become less competitive relative to newer higher rate fixed income instruments. As a life insurer, we strive to match our asset duration to our liability duration. Since a vast majority of our investment portfolio is long duration fixed maturity securities, our investment portfolio was impacted by these rising rates. Higher interest rates resulted in an accumulated pre-tax net unrealized loss of $180.3 million on our available-for-sale securities at December 31, 2024 compared to an accumulated pre-tax net unrealized loss of $150.1 million at December 31, 2023.
The credit ratings and default risk of our fixed maturity securities were not significantly impacted by the rise in interest rates and because we intend to hold the long-term investments to maturity, we do not believe that the current unrealized loss is indicative of our long-term financial strength, as we expect the market values to recover prior to the maturity date of most of these investments.
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Investment Related Losses due to BlackRock write-down
As we have previously discussed, investment related gains and losses derive principally from our investments in equity securities and include unrealized gains and losses from market price changes in these equities during the period. As evidenced, investment related gains and losses can cause significant fluctuations from period to period and while they are included in our operating revenue, we do not believe they are indicative of our operating results.
In December 2024, BlackRock, Inc. ("BlackRock") announced a substantial write-down of its Global Renewable Power Fund III, a $4.8 billion flagship renewable fund, due to the collapse of two key investments: Northvolt and SolarZero. We had invested in this fund as part of our environmental, social and governance ("ESG") initiatives and although we did not sell this investment, due to the write-down, we reported an investment related loss on this investment of $3.3 million. This sector has experienced market headwinds primarily driven by rising interest rates, supply chain disruption and less certain policy environment.
Legal Proceedings
See Part IV. Item 15. Note 8. Commitments and Contingencies, as well as Part I. Item 3. Legal Proceedings - Trade Secret Lawsuit for a discussion of the trade secret lawsuit, which has impacted our results of operations and could negatively impact our cash if we do not succeed in our appeal.
FINANCIAL HIGHLIGHTS
Summary
Net income before federal income tax decreased to $15.0 million in 2024 from $26.2 million in 2023. The factors that impacted this change were:
•$3.4 million decrease in investment related gains and losses primarily related to the BlackRock write-down;
•the accrual of $3.5 million in legal fees awarded to the certain defendants in the trade secret lawsuit; and
•total premium revenues increased by $6.3 million in 2024 for the first time in 7 years, but offset by an $11.5 million increase in total insurance benefits paid or provided.
Financial Condition at December 31, 2024
•Total assets of $1.7 billion.
•Total direct insurance in force of $5.2 billion.
•Total investments of $1.4 billion; fixed maturity securities comprised 88% of total investments.
•No debt.
•Diluted earnings per share of Class A common stock of $0.29.
•Book value per share of Class A common stock of $4.21.
•Adjusted book value per share of Class A common stock of $6.141.
The Factors that Drive our Operating Results
We see the following as the primary factors that drive our operating results.
•Sales (i.e., premium revenues)
•Investments
•Claims and surrenders
•Operating expenses
•Actuarial assumptions
1 Adjusted book value per of Class A common share is a non-GAAP measure that is calculated by dividing actual Class A common stockholders’ equity, excluding AOCI, by the number of Class A common shares outstanding at the end of the period.
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Premium revenues and investment income are our two primary sources of income and thus key to our profitability.
Premium Revenues. Premium revenues consist of all money deposited by customers into new and existing insurance policies. We view these premiums in two categories - first year premiums are premiums received within the first 12 months of a policy's issuance and any premiums received thereafter are renewal premiums.
We believe sales statistics are meaningful to gaining an understanding of, among other things, the attractiveness of our new products, how expansion of our distribution channels affects our revenue, customer retention and the performance of our business from period to period. Throughout the MD&A and in Part I. Item 1. Business, we describe the actions and initiatives that we are taking to increase sales and improve retention, sales performance in each period and as compared to prior periods, and how we view trends with respect to sales and retention.
Over the last couple of years, we began our "white label" program to expand our distribution by expanding CICA Domestic's state licenses, developing new final expense and living benefit products, and filing these new products in multiple states. As a result, in the past year, we have significantly expanded our domestic distribution in the Life Insurance segment and first year premiums have more than doubled in this segment quarter-over-quarter and year-to-date as compared to 2023. We incur significant upfront costs in acquiring new business such as this, including the payment of sales commissions and underwriting costs, and thus in order to provide more capacity for growth, we entered into a coinsurance agreement in the second quarter of 2024 with RGA Reinsurance Company ("RGA" and the coinsurance agreement referred to as the "RGA Agreement") as discussed in Part I. Item 1. Business - Reinsurance. We refer to "direct" premiums as all premiums received and "net" or "total" premiums as all premiums received less premiums ceded to RGA and our other reinsurers.
Because we ceased operations in our property insurance business effective June 30, 2023, the premiums charts and discussions below only reflect life insurance and accident and health insurance ("A&H") premiums results.
Total direct premium revenue increased 6% in 2024, totaling $178.8 million compared to $168.0 million in 2023. This was the first time our total premium revenue has increased since 2017.
First Year Premiums. Total direct first year premiums increased 71%, to $33.0 million in 2024, compared to $19.3 million in 2023, including 106% growth in our Life Insurance segment driven by new products and an increased number of producing agents. In addition to increased first year premiums due to our domestic growth discussed above, first year premiums in our international business increased in 2024 from 2023 as we continue to work with our distribution partners to expand products and sales.
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Renewal Premiums. Our renewal premium revenues in 2024 decreased primarily due to the impact of a higher level of surrenders and matured endowments in our international business during the last few years, which has led to a lower number of policies paying renewal premiums.
Investment Income. Our net investment income increased from 2023 to 2024 due primarily to investment income from our limited partnership investments, a growing diversified invested asset base and reinvesting matured or called fixed income maturity securities into a higher interest rate environment.
Claims and Surrenders. Payment of policyholder benefits for claims and surrenders is our largest expense and thus also key to our profitability. The three largest components of this expense are reflected in the graph below. In 2024, compared to 2023,
•death claim benefits increased due to the significant growth in our domestic life in force business as well as a higher average claim amount in our Home Services Insurance segment,
•surrenders decreased as we continue to focus on retention efforts, and
•matured endowments increased as expected due to many of our endowment policies reaching their contractual maturity dates.
While surrenders and matured endowments do not significantly affect current profitability since reserves are released in a corresponding amount of the surrendered policy or matured endowment benefit payment, they negatively affect future renewal premium revenue and thus have a greater impact to future profitability versus current profitability.
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Operating Expenses. Operating expenses are our second largest expense and thus also drive our operating results. Operating expenses are meaningful to gaining an understanding of how we manage our business, including among other things, salaries, benefits, and spending on growth initiatives. The primary reason for the increase in 2024 was the accrual of $3.5 million in legal fees awarded to certain defendants in the trade secret lawsuit. We have not paid any fees and have appealed the judgment against us. See Part IV. Item 15. Note 8. Commitments and Contingencies, as well as Part I. Item 3. Legal Proceedings - Trade Secret Lawsuit for additional details. To a lesser extent, the increase was also due to our continued investment in the growth of our business and costs incurred as we transitioned to a new CEO.
Actuarial Assumptions. The actuarial assumptions that underlie our reserves are based upon our best estimates of certain factors such as mortality, lapses, morbidity and discount rates. Our results will be affected to the extent there is a variance between our actuarial assumptions and actual experience.
As discussed above, our domestic growth in the Life Insurance segment has been significantly expanded. Our current profitability is affected by the level of reserves we have to hold for this new business, and how closely actual experience matches our actuarial assumptions. The actuarial assumptions that underlie our reserves are based upon our best estimates and are inherently more difficult to predict for a new product line. As we continue our expansion into this market, we expect results will become proportionally less volatile. Actuarial assumptions are continually monitored and updated at least annually to reflect overall experience as well as emerging trends.
CONSOLIDATED RESULTS OF OPERATIONS
Our Operating Segments
We manage our business in two operating segments: Life Insurance and Home Service Insurance. See Part I. Item 1. Business for a discussion about the business operations in each segment.
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Our insurance operations are the primary focus of the Company, as these operations generate most of our income. See the discussion under Segment Operations below for detailed analysis. The amount of insurance, number of policies, and average face amounts for life policies issued during the periods indicated are shown below.
Years Ended December 31, 2024 2023
Amount of
Insurance
Issued Number of
Policies
Issued
Average Policy Face
Amount Issued Amount of
Insurance
Issued Number of
Policies
Issued
Average Policy Face
Amount Issued
Life Insurance:
International $ 475,692,442 4,465 $ 106,538 $ 399,691,578 4,067 $ 98,277
Domestic 438,843,033 40,635 10,800 53,356,685 4,541 11,750
Total Life Insurance 914,535,475 45,100 20,278 453,048,263 8,608 52,631
Home Service Insurance 225,370,276 17,553 12,839 288,867,758 22,429 12,879
Total $ 1,139,905,751 62,653 $ 741,916,021 31,037
In 2024, we issued $1.1 billion in new insurance, a 54% increase from 2023 and the highest amount of insurance ever issued in a year by our company. This was a direct result of our growth-oriented strategic initiatives including the introduction of new products tailored to our specific markets and expansion of our distribution channels through white-label partnerships. The introduction of new products and expanded distribution channels helped drive the increase of $0.4 billion in total insurance issued in 2024.
The growth in our Life Insurance segment is primarily attributable to strong sales of our new domestic final expense products, which accounted for almost half of the insurance issued in this segment through December 31, 2024. The Life Insurance segment also benefited from sales of our international whole life product, which accounted for 68% of total insurance issued internationally in this segment for the year ended December 31, 2024.
Insurance issued in our Home Service Insurance segment decreased for the year ended December 31, 2024 compared to the prior year period largely due to strategic actions intended to improve sales quality and persistency, which led to a decrease in our agent sales force as we focus on these improvements. We also believe the impact of inflation on the cost of living has affected new sales since the customer demographic is primarily lower-income individuals.
The amount of direct insurance inforce for the years indicated is shown below.
Overall insurance inforce growth has been and will be impacted by persistency rates, policy maturities and surrenders.
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REVENUES
Years ended December 31,
(In thousands)
2024 2023
Revenues:
Premiums:
Life insurance $ 171,561 164,609
Accident and health insurance 1,785 1,637
Property insurance (18) 793
Net investment income 69,712 69,254
Investment related gains (losses) (2,626) 760
Other income 4,587 3,627
Total revenues $ 245,001 240,680
The Company stopped accepting premiums for property insurance at the end of May 2023 and ceased operations on June 30, 2023. Therefore, the table below shows a summary of our life and A&H premiums for the periods indicated.
Years ended December 31,
(In thousands)
2024 2023
Life and A&H premiums:
Direct premiums:
First year $ 33,022 19,289
Renewal 145,819 148,688
Total direct life and A&H premiums 178,841 167,977
Reinsurance (5,495) (1,731)
Total premiums $ 173,346 166,246
Total revenues increased in 2024 driven by an increase in direct premium revenue for the first time since 2017.
Our first year direct premiums increased 71% in 2024 compared to 2023 due to our new product offerings and expanded domestic distribution. Our direct renewal premiums comprised 82% of our total direct premium revenue in 2024 and 89% in 2023. Renewal premiums declined by 2% in 2024 compared to 2023; as discussed above, the decline in Life Insurance segment renewal premiums is due to the impact from a higher level of surrenders during the last few years and increasing matured endowment benefits.
Reinsurance ceded premiums increased in the twelve months ended December 31, 2024 compared to the same periods in 2023 due to the RGA Agreement entered in the second quarter of 2024, which relates to our CICA Domestic business.
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Net Investment Income. A summary of our net investment income and net investment income performance is as follows:
Years ended December 31,
(In thousands, except for %)
2024 2023
Gross investment income:
Fixed maturity securities $ 60,940 60,127
Equity securities 302 630
Policy loans 5,597 6,011
Other long-term investments 4,846 4,509
Other 834 576
Total investment income 72,519 71,853
Investment expenses
(2,807) (2,599)
Net investment income $ 69,712 69,254
Average invested assets, at amortized cost $ 1,527,356 1,517,685
Yield on average invested assets 4.56 % 4.56 %
Fixed maturity securities constitute the vast majority, or 88%, of our investment portfolio based on fair value and thus provide the majority of our net investment income. Our fixed maturity investment portfolio, primarily invested in callable securities, has faced challenges due to the sustained low interest rate environment over the past decade. Many securities were called between 2019 and 2021, necessitating reinvestment in lower interest rate fixed maturity assets, which has begun and will continue to impact net investment income and yields. However, diversification into limited partnership investments has helped offset this challenging investment environment.
Investment Related Gains (Losses). We recorded an investment related loss of $2.6 million during 2024, compared to a gain of $0.8 million in 2023. As discussed above, the loss in 2024 was due to our write-down of the BlackRock ESG investment. We did not sell this investment; however, the changes in fair values of our equity securities are reflected as investment related gains or losses in our income statement, in addition to executed transactions that result in a gain or loss.
Other Income. Other income consists primarily of supplemental contracts issued to international policyholders in our Life Insurance segment upon the surrender or maturity of their original policies. Supplemental contracts offer our policyholders the opportunity to leave their cash with us and be paid interest at a guaranteed rate or receive an annuity, at their option.
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BENEFITS AND EXPENSES
Years ended December 31,
(In thousands)
2024 2023
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders $ 146,082 135,993
Increase (decrease) in future policy benefit reserves
(4,286) (5,624)
Policyholder liability remeasurement (gain) loss 4,756 4,460
Policyholders' dividends 5,355 5,542
Total insurance benefits paid or provided 151,907 140,371
Commissions 49,118 39,241
Other general expenses 52,266 47,131
Capitalization of deferred policy acquisition costs (41,302) (28,301)
Amortization of deferred policy acquisition costs 17,435 15,460
Amortization of cost of insurance acquired 597 604
Total benefits and expenses $ 230,021 214,506
Payments of claims and surrenders benefits and other general expenses constitute the majority of our expenses.
Claims and Surrenders.
Years ended December 31,
(In thousands)
2024 2023
Claims and surrenders:
Death claim benefits $ 24,292 22,458
Surrender benefits 53,609 56,856
Endowment benefits 7,554 8,296
Matured endowment benefits 53,551 41,855
Property claims (11) 699
Accident and health benefits 402 458
Other policy benefits 6,685 5,371
Total claims and surrenders $ 146,082 135,993
Death claim benefits increased 8% in 2024 compared to 2023 due primarily to the increase in policies issued over the past few years and an increase in the average amount of claims reported in our Home Service Insurance segment.
Surrender benefits decreased 6% in 2024 compared to 2023. Surrenders are primarily related to international policies that have passed their surrender charge period. We have implemented retention initiatives over the past few years, which we believe are helping to decrease surrenders.
Many of our endowment policies are reaching their contractual maturity dates and thus matured endowment benefits are increasing. We anticipated the $11.7 million increase in 2024 based upon the contractual maturity dates and expect continued increases in matured endowment benefits over the next few years as more of these contracts expire.
Increase (Decrease) in Future Policy Benefit Reserves. Future policy benefit reserves reflect the liability established to provide for the payment of policy benefits that we expect to pay in the future and thus generally increase when we have a larger in force block of business due to higher sales and persistency (i.e., more policies on which we expect to pay future benefits) and decrease when we have lower sales and persistency. In the year
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ended December 31, 2024, the change in future policy benefit reserves increased due to the amount of reserves on new insurance issued and the in force book of business somewhat offset by released reserves in connection with higher matured endowments.
Policyholder Liability Remeasurement (Gain) Loss. Most of our products are long-duration contracts that provide a specified, fixed amount of insurance benefit in exchange for a fixed premium. When a policy is initially issued, we establish a "net premium ratio" ("NPR") using assumptions regarding expected premiums and policyholder benefit liabilities. On a quarterly basis, we review actual versus expected experience in such quarter, which is reported as a policyholder liability remeasurement gain (if better performance than assumptions) or loss (if lower performance than assumptions). Additionally, in the third quarter of each year, we update our cash flow assumptions to recalculate the NPR, with the impact on the liability for future policy benefits recognized as a policyholder liability remeasurement on a retrospective catch-up basis. In 2024, remeasurement (gain) loss was negatively affected by updates to mortality and lapse assumptions that better reflect emerging experience for the new CICA Domestic block of business.
Commissions. Commission expenses are a cost of acquiring business, as commissions are the primary compensation paid to our independent consultants and independent agents for selling our products. First year commission rates are higher than renewal commission rates and thus commissions fluctuate directly in relation to first year sales. The increases in first year sales in the year ended December 31, 2024 led to an increase in commission related expenses as compared to prior years.
Other General Expenses. Total general expenses increased $5.1 million, or 11%, in 2024 compared to 2023. The increase was primarily driven by the $3.5 million accrual related to the trade secret lawsuit, as well as costs related to strategic growth initiatives and costs incurred as we transitioned to a new CEO. We continue to work on managing controllable operating expenses while investing in growth initiatives.
Capitalization of Deferred Policy Acquisition Costs ("DAC"). We capitalize costs related to successful sales of our insurance products, which include certain commissions, policy issuance costs, and underwriting and agency expenses. These costs vary based upon amounts of premiums received related to new and renewal business. Capitalized DAC increased during 2024, which is in line with the increases in new sales activity. Significantly lower amounts are capitalized related to renewal business in correlation with the lower commissions paid on that business compared to first year business, which has higher commission rates.
Amortization of Deferred Policy Acquisition Costs. Amortization of DAC totaled $17.4 million and $15.5 million in 2024 and 2023, respectively. DAC is amortized on a constant level basis over the expected term of the related contracts to approximate straight-line amortization.
SEGMENT OPERATIONS
We operate in two business segments: Life Insurance and Home Service Insurance.
These segments are reported in accordance with U.S. GAAP. The Company evaluates profit and loss performance based on U.S. GAAP net income (loss) before federal income taxes for these segments. The Company's Other Non-Insurance enterprises include non-insurance operations such as IT and corporate-support functions, which are included in the table presented below to properly reconcile the segment information with the consolidated financial statements of the Company.
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CITIZENS, INC.
The following table sets forth income (loss) before federal income taxes by segment during the periods indicated.
Years ended December 31,
(In thousands)
2024 2023
Income before federal income taxes:
Segments:
Life Insurance $ 22,946 28,621
Home Service Insurance 2,480 3,013
Total Segments 25,426 31,634
Other Non-Insurance Enterprises (10,446) (5,460)
Total income before federal income taxes $ 14,980 26,174
LIFE INSURANCE
Detailed results of operations for the Life Insurance segment for the periods indicated are as follows:
Years ended December 31,
(In thousands)
2024 2023
Revenues:
Premiums:
Life insurance $ 129,426 121,424
Accident and health insurance 763 721
Net investment income 54,666 54,352
Investment related gains (losses), net (2,185) 301
Other income 4,483 3,605
Total revenues 187,153 180,403
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 123,020 113,428
Increase (decrease) in future policy benefit reserves
(10,501) (10,931)
Policyholder liability remeasurement (gain) loss 5,380 4,153
Policyholders' dividends 5,332 5,512
Total insurance benefits paid or provided 123,231 112,162
Commissions 35,795 22,896
Other general expenses 25,898 23,969
Capitalization of deferred policy acquisition costs (35,404) (20,251)
Amortization of deferred policy acquisition costs 14,584 12,895
Amortization of cost of insurance acquired 103 111
Total benefits and expenses 164,207 151,782
Income (loss) before federal income taxes $ 22,946 28,621
In our Life Insurance segment, income before federal income tax was $22.9 million in 2024, as compared to $28.6 million in 2023 as $8.0 million in higher premium revenue was offset by an increase in total insurance benefits paid or provided and the investment related losses due to the BlackRock write-off. Other general expenses were also higher to support our CICA Domestic growth.
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CITIZENS, INC.
Life Insurance segment premium breakout is detailed below.
Years ended December 31,
(In thousands)
2024 2023
Premiums:
Direct premiums:
First year $ 27,796 13,479
Renewal 107,861 110,372
Total direct premiums 135,657 123,851
Reinsurance (5,468) (1,706)
Total premiums
$ 130,189
122,145
Premiums. Direct premiums increased by $11.8 million in 2024 as compared to 2023 due to the sales of new products and expanded domestic distribution in addition to increased first year premiums in our international business due to increased production by our existing agents in South America. Due to the RGA Agreement, premiums ceded increased and thus total premiums increased by $8.0 million.
While our domestic life insurance business drove the significant increase in first year premiums, life insurance premiums are generated largely from our international policyholders living in almost 80 different countries across the globe. The following table sets forth our premiums by location for the years ended December 31, 2024 and 2023.
Years ended December 31,
(In thousands, except for %)
2024 2023
International premiums:
Colombia $ 25,727 25,453
Taiwan 16,690 17,760
Venezuela 14,305 15,143
Ecuador 13,159 13,379
Argentina 10,319 9,533
Other Non-U.S. 39,315 38,943
Total international premiums
119,515 120,211
Domestic premiums 15,417 4,229
Reinsurance and change in premium accruals
(4,743) (2,295)
Total premiums
$ 130,189 122,145
Investment Related Gains (Losses), Net. The investment related gains and losses in 2024 increased due to the BlackRock write-down. These gains and losses are generally a result of the change in estimated fair market value for our limited partnerships, as previously discussed.
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CITIZENS, INC.
Claims and Surrenders. The following table sets forth our primary claims and surrender benefits within our Life Insurance segment.
Years ended December 31,
(In thousands)
2024 2023
Claims and surrenders:
Death claim benefits $ 5,857 4,803
Surrender benefits 49,793 53,462
Endowment benefits 7,546 8,289
Matured endowment benefits 52,915 41,252
A&H and other policy benefits
6,909 5,622
Total claims and surrenders $ 123,020 113,428
The majority of our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits and matured endowment benefits. Many of our endowment policies are reaching their contractual maturity dates and thus matured endowment benefits are increasing. We expect this trend to continue over the next few years. Surrender benefits decreased in 2024 compared to 2023, which we believe is due to our retention efforts. Death claims benefits increased in 2024 compared to 2023 as we saw a higher number of reported claims due to the increase in policies issued, primarily in our new domestic business. Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.
Other General Expenses. General expenses increased due primarily to expenses related to costs associated with the expansion of our domestic life insurance business.
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CITIZENS, INC.
HOME SERVICE INSURANCE
Detailed results of operations for the Home Service Insurance segment for the periods indicated are as follows:
Years ended December 31,
(In thousands)
2024 2023
Revenues:
Premiums:
Life insurance $ 42,135 43,185
Accident and health insurance 1,022 916
Property insurance (18) 793
Net investment income 14,162 13,832
Investment related gains (losses), net (424) 522
Other income 21 17
Total revenues 56,898 59,265
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 23,062 22,565
Increase in future policy benefit reserves 6,215 5,307
Policyholder liability remeasurement (gain) loss (624) 307
Policyholders' dividends 23 30
Total insurance benefits paid or provided 28,676 28,209
Commissions 13,323 16,345
Other general expenses 14,972 16,690
Capitalization of deferred policy acquisition costs (5,898) (8,050)
Amortization of deferred policy acquisition costs 2,851 2,565
Amortization of cost of insurance acquired 494 493
Total benefits and expenses 54,418 56,252
Income (loss) before federal income taxes $ 2,480 3,013
In our Home Service Insurance segment, income before federal income tax was $2.5 million in 2024, as compared to $3.0 million in 2023. The decline is attributed to lower premium revenue from unfavorable persistency on newer policies, investment related losses and higher insurance benefits offset by lower other general expenses.
Premiums. Home Service Insurance segment life and A&H premium breakout is detailed below.
Years ended December 31,
(In thousands) 2024 2023
Direct life and A&H premiums:
First year $ 5,226 5,810
Renewal 37,958 38,316
Total direct life and A&H premiums
$ 43,184 44,126
Our life and A&H premiums declined in 2024 compared to 2023 due largely to strategic actions intended to improve sales quality and persistency, which actions led to a decrease in our agent sales force as we focus on these improvements. Additionally, we believe external economic pressures, such as inflation, have impacted revenue in this segment disproportionately.
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CITIZENS, INC.
Claims and Surrenders. Claims and surrender benefits, which are the largest portion of our expenses, are summarized below:
Years ended December 31,
(In thousands)
2024 2023
Claims and surrenders:
Death claim benefits $ 18,435 17,655
Surrender benefits 3,816 3,394
Endowment benefits 8 7
Matured endowment benefits 636 603
Property claims (11) 699
A&H and other policy benefits
178 207
Total claims and surrenders $ 23,062 22,565
The majority of claims and surrender benefits in our Home Service Insurance segment are death claim benefits. Death claim benefits increased 4% in 2024 compared to 2023 due to a higher volume of reported claims. Mortality experience is closely monitored by the Company as a key performance indicator and fluctuates from quarter-to-quarter based on reported claims.
Surrender benefits increased in 2024 compared to 2023. We believe the impact of inflation is negatively impacting persistency.
Increase in Future Policy Benefit Reserves. Future policy benefit reserves increased in 2024 compared to 2023 due to better persistency on our inforce block coupled with unfavorable retention on newer issued policies.
Policyholder Liability Remeasurement (Gain) Loss. In 2024, remeasurement gain was a result of favorable mortality experience compared to our assumptions.
Other General Expenses. Other general expenses decreased by $1.7 million in 2024 compared to 2023 due primarily to ceasing our property insurance business as discussed above.
NON-INSURANCE ENTERPRISES
Years ended December 31,
(In thousands)
2024 2023
Income (loss) before federal income tax $ (10,446) (5,460)
This operating unit represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under U.S. GAAP, which typically results in a loss. Revenue in this operating unit consists primarily of net investment income and investment related gains or losses, while expenses consist of other general expenses related to corporate functions. The loss reported for 2024 increased as other general expenses increased primarily related to the accrual for the trade secret lawsuit.
INVESTMENTS
Our investments are an integral part of our business success, as we invest the majority of premiums collected to pay for future benefits and rely on net investment income for our ongoing operations. The administration of our investment portfolio is handled by our management and a third-party investment manager, pursuant to Board-approved investment guidelines. As a primary goal of state insurance regulation is to ensure the solvency of an insurance company, state insurance statutes strictly regulate the types of investments that may be made by insurance companies. The majority of investments are required to be in qualified state, municipal, federal and foreign government obligations and high quality corporate bonds. To a lesser extent, we may invest in preferred and common stock, limited partnerships and mortgage loans. In executing investing activities our management and
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third-party investment manager are incorporating environmental, social and governance factors into their respective investment processes as appropriate. These factors include investing in opportunities to help mitigate climate change by pursuing relevant investments across asset classes.
Our cash and invested assets at December 31, 2024 were $1.4 billion, of which 86% was invested in fixed maturity securities, all of which are classified as available-for-sale. We closely monitor the duration of our fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy our insurance obligations.
The following table shows the carrying value of our investments by investment category and cash and cash equivalents and the percentage of each to total cash, cash equivalents and invested assets.
As of December 31,
(In thousands, except for %)
2024 % 2023 %
Cash, cash equivalents and invested assets:
Fixed maturity securities:
U.S. Treasury and U.S. Government-sponsored enterprises $ 9,213 0.6 % $ 9,715 0.7 %
Corporate 794,989 56.0 787,607 55.1
Municipal bonds (1)
268,302 18.9 287,231 20.1
Mortgage-backed (2)
93,953 6.6 97,294 6.8
Asset-backed 54,504 3.9 57,134 4.0
Total fixed maturity securities 1,220,961 86.0 1,238,981 86.7
Cash and cash equivalents 29,271 2.0 26,997 1.8
Other investments:
Policy loans 71,216 5.0 75,359 5.3
Equity securities 5,447 0.4 5,282 0.4
Other long-term investments 93,604 6.6 82,725 5.8
Total cash, cash equivalents and invested assets
$ 1,420,499 100.0 % $ 1,429,344 100.0 %
(1) Includes $113.4 million and $124.2 million of securities guaranteed by third parties at December 31, 2024 and 2023, respectively.
(2) Includes $92.8 million and $96.1 million of U.S. Government-sponsored enterprises at December 31, 2024 and 2023, respectively.
The carrying value of the Company’s fixed maturity securities investment portfolio at December 31, 2024 was $1.22 billion compared to $1.24 billion at December 31, 2023. As discussed above, this decrease primarily reflects the impact of interest rate sensitivity on the fair value of our fixed maturity securities. The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of December 31, 2024 did not materially change from December 31, 2023 - the weighted average was “A” at both dates.
Cash and cash equivalents increased as of December 31, 2024 compared to December 31, 2023 and fluctuate from period to period primarily due to the timing of operating and investing activities.
Other long-term investments increased to $93.6 million as of December 31, 2024, as compared to $82.7 million as of December 31, 2023 due to additional funding.
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CITIZENS, INC.
The following table shows annualized investment yields by segment and on a consolidated basis as of December 31 for each year presented.
Year Life
Insurance Home
Service Insurance Consolidated
2024 4.56 % 4.58 % 4.56 %
2023 4.58 % 4.53 % 4.56 %
Yields on invested assets vary between segment operations due to different portfolio mixes and durations in each segment's portfolio. The consolidated yields include our other non-insurance enterprises. Our fixed maturity investment portfolio, primarily invested in callable securities, has faced challenges due to the sustained low interest rate environment over the past decade. Many securities were called between 2019 and 2021, necessitating reinvestment in lower interest rate fixed maturity assets, which has begun and will continue to impact net investment income and yields. However, diversification of our investment portfolio into limited partnership investments helped offset that challenging investment environment.
Credit quality is an important feature of our investment guidelines for our fixed maturity securities. Credit ratings reported for the periods indicated are assigned by a Nationally Recognized Statistical Rating Organization ("NRSRO") such as Moody’s Investors Service and Standard & Poor’s. A credit rating assigned by a NRSRO is a quality-based rating, with AAA representing the highest quality and D the lowest, with BBB and above being considered investment grade. If there is no NRSRO rating, the Company may use credit ratings of the NAIC Securities Valuation Office ("SVO") as assigned. Securities rated by the SVO are grouped in the equivalent NRSRO category as stated by the SVO, and securities that are not rated by a NRSRO are included in the "other" category.
The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value.
December 31, (In thousands, except for %)
2024 % 2023 %
AAA $ 36,458 3.0 % $ 36,233 2.9 %
AA 332,010 27.2 337,841 27.3
A 393,598 32.2 394,158 31.8
BBB 449,117 36.8 463,581 37.4
BB and other 9,778 0.8 7,168 0.6
Totals $ 1,220,961 100.0 % $ 1,238,981 100.0 %
Our investment policy requires investment primarily in fixed maturity securities that are investment grade. Non-investment grade securities are typically the result of ratings downgrades of issuers or securities acquired during acquisitions of other companies, as the Company has not purchased below investment grade securities.
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Obligations of States and Political Subdivisions
The Company’s fixed maturity securities investment portfolio at December 31, 2024 and 2023 included $268.3 million and $287.2 million, respectively, of securities that are obligations of states and political subdivisions, including municipalities (collectively referred to as the municipal fixed maturity security portfolio).
As of December 31, 2024, the Company held municipal fixed maturity securities that include third-party guarantees. Detailed below is a presentation by credit rating of our municipal fixed maturity securities by funding type.
December 31, 2024
General Obligation Special Revenue Other Total % Based on
Amortized
Cost
(In thousands, except for %) Fair
Value Amortized
Cost Fair
Value Amortized
Cost Fair
Value Amortized
Cost Fair
Value Amortized
Cost
Municipal fixed maturity securities shown including third-party guarantees:
AAA $ 12,474 12,387 9,874 10,389 - - 22,348 22,776 7.6 %
AA 46,265 46,842 110,725 129,546 6,284 6,549 163,274 182,937 60.8
A 2,895 3,263 70,150 81,143 2,115 2,125 75,160 86,531 28.8
BBB 534 556 3,962 4,760 - - 4,496 5,316 1.8
BB and other 2,974 3,147 50 50 - - 3,024 3,197 1.0
Total $ 65,142 66,195 194,761 225,888 8,399 8,674 268,302 300,757 100.0 %
Municipal fixed maturity securities shown excluding third-party guarantees:
AA $ 33,142 33,315 32,485 36,958 4,539 4,576 70,166 74,849 24.9
A 14,424 14,876 84,784 97,322 2,859 3,098 102,067 115,296 38.3
BBB 2,863 3,171 18,074 20,292 - - 20,937 23,463 7.8
BB and other 14,713 14,833 59,418 71,316 1,001 1,000 75,132 87,149 29.0
Total $ 65,142 66,195 194,761 225,888 8,399 8,674 268,302 300,757 100.0 %
The table below shows the categories in which the Company held investments in special revenue fixed maturity securities that were greater than 10% of fair value based upon the Company's total municipal fixed maturity security portfolio at December 31, 2024.
(In thousands, except for %) Fair
Value Amortized Cost % of Total Fair Value
Education $ 44,347 51,120 16.5 %
Utilities 42,828 47,061 16.0 %
Transportation 32,633 40,238 12.2 %
The Company's municipal fixed maturity security portfolio is spread across many states. However, municipal fixed maturity securities from Texas and California comprise the most significant concentration of the total municipal fixed maturity security portfolio as of December 31, 2024. The Company holds 22% and 16% of its municipal fixed maturity security portfolio in Texas and California issuers, respectively, as of December 31, 2024. There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal fixed maturity security portfolio as of December 31, 2024.
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CITIZENS, INC.
The table below represents the Company's detailed exposure to municipal fixed maturity securities by credit rating in Texas at December 31, 2024.
General Obligation Special Revenue Other Total
(In thousands) Fair
Value Amortized
Cost Fair
Value Amortized
Cost Fair
Value Amortized
Cost Fair
Value Amortized
Cost
Texas state and political subdivision fixed maturity securities including third-party guarantees:
AAA $ 11,969 11,884 2,527 2,633 - - 14,496 14,517
AA 16,205 16,145 14,519 17,559 - - 30,724 33,704
A - - 13,897 18,057 - - 13,897 18,057
Total $ 28,174 28,029 30,943 38,249 - - 59,117 66,278
Texas state and political subdivision fixed maturity securities excluding third-party guarantees:
AA $ 23,584 23,439 3,058 3,691 - - 26,642 27,130
A 3,090 3,090 15,864 18,068 - - 18,954 21,158
BBB - - 3,166 3,415 - - 3,166 3,415
BB and other 1,500 1,500 8,855 13,075 - - 10,355 14,575
Total $ 28,174 28,029 30,943 38,249 - - 59,117 66,278
The table below represents the Company's detailed exposure to municipal fixed maturity securities by credit rating in California at December 31, 2024.
General Obligation Special Revenue Other Total
(In thousands) Fair
Value Amortized
Cost Fair
Value Amortized
Cost Fair
Value Amortized
Cost Fair
Value Amortized
Cost
California state and political subdivision fixed maturity securities including third-party guarantees:
AA $ 2,023 2,080 30,874 37,407 2,437 2,734 35,334 42,221
A 1,271 1,650 6,971 8,689 - - 8,242 10,339
Total $ 3,294 3,730 37,845 46,096 2,437 2,734 43,576 52,560
California state and political subdivision fixed maturity securities excluding third-party guarantees:
AA $ 446 445 4,162 5,058 692 760 5,300 6,263
A 2,848 3,285 19,675 23,998 1,745 1,974 24,268 29,257
BB and other - - 14,008 17,040 - - 14,008 17,040
Total $ 3,294 3,730 37,845 46,096 2,437 2,734 43,576 52,560
IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY AND EQUITY SECURITIES
The Company assesses available-for-sale ("AFS") fixed maturity securities in an unrealized loss position for expected credit losses. The Company did not record any credit valuation allowances on fixed maturity securities in 2024 or 2023.
Gross unrealized losses on AFS fixed maturity securities amounted to $185.7 million as of December 31, 2024 and $158.7 million as of December 31, 2023. This increase in gross unrealized losses during 2024 was a result of the increase in average market interest rates at the end of 2024 as compared to 2023.
Information on both unrealized and realized gains and losses by category is set forth in Part IV. Item 15. Note 2. Investments of the notes to our consolidated financial statements.
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CITIZENS, INC.
REINSURANCE
As is customary among insurance companies, our insurance company subsidiaries reinsure, with other companies, portions of the life insurance risks they underwrite. A primary purpose of reinsurance agreements is to enable an insurance company to reduce the amount of risk by reinsuring the amount exceeding the maximum amount the insurance company is willing to retain and help manage risk and strain on statutory capital. The Company evaluates the maximum amount it's willing to retain from time to time and may increase the amount retained which can lower premiums ceded and thus increase revenues. Even though a portion of the risk may be reinsured, our insurance company subsidiaries remain liable to perform all the obligations imposed by the policies issued by them and could be liable if their reinsurers were unable to meet their obligations under the reinsurance agreements.
We believe we have established appropriate reinsurance coverage based upon our net retained insured liabilities compared to our surplus.
The effect of reinsurance on premiums is as follows.
Years ended December 31,
(In thousands)
2024 2023
Direct premiums $ 178,836 170,557
Reinsurance assumed 67 68
Reinsurance ceded (5,575) (3,586)
Net premiums $ 173,328 167,039
Our insurance subsidiaries monitor the solvency of their reinsurers to minimize the risk of loss in the event of default by a reinsurer. The primary reinsurers of our insurance subsidiaries are large, well-capitalized entities who have ratings by A.M. Best Company ranging from A- (Excellent) to A+ (Superior).
The effect of reinsurance on life insurance in force is as follows.
Years ended December 31,
(In millions)
2024 2023
Direct written life insurance in force $ 5,228 4,922
Reinsurance assumed 3 4
Reinsurance ceded (821) (620)
Net life insurance in force $ 4,410 4,306
LIQUIDITY AND CAPITAL RESOURCES
Below are our primary capital resources (based on carrying value) at December 31, 2024 and 2023.
(In thousands, except for %)
2024 2023
Fixed maturity securities $ 1,220,961 1,238,981
Cash and cash equivalents 29,271 26,997
Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations. In the year ended December 31, 2024, our operations provided $31.9 million of net cash. We manage our insurance operations as described herein in order to ensure that we have stable and reliable sources of cash flows to meet our obligations. We currently anticipate meeting our short-term and long-term cash needs with cash generated by our insurance operations and from our invested assets. From time to time we may raise capital by selling shares in our SIP (as defined below) and we may also access our Credit Facility if needed (also as described below). Citizens had no debt at December 31, 2024.
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Cash from Operating Activities. Cash provided by or used in operating activities is an important liquidity metric because it reflects, during a given period, the amount of cash generated that is available to pay our operating expenses, invest in our business or make strategic acquisitions. Cash provided by operating activities was $31.9 million and $22.1 million for the years ended December 31, 2024 and 2023, respectively.
Cash used in Investing Activities. We have traditionally also had significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows, for the most part, are reinvested in new investments. Net cash outflows from investing activities totaled $27.2 million and $14.5 million for the years ended December 31, 2024 and 2023, respectively. The investing activities fluctuate from period to period due to timing of securities activities such as calls and maturities and reinvestment of those funds. We purchased $84.4 million of fixed maturity securities and we also used $16.2 million to purchase other long-term investments in 2024. 88% of our investments consist of marketable fixed maturity securities classified as available-for-sale that could be readily converted to cash for liquidity needs.
PARENT COMPANY LIQUIDITY AND CAPITAL RESOURCES
Citizens is a holding company and has minimal operations of its own. Our assets consist of the capital stock of our subsidiaries, cash and investments. Our liquidity requirements are met primarily from two sources: cash generated from our operating subsidiaries and our invested assets. Our ability to obtain cash from our insurance subsidiaries depends primarily upon the availability of statutorily permissible payments, including payments we receive from service agreements with our insurance subsidiaries and dividends from the subsidiaries. The ability to make payments to the holding company is limited by applicable laws of the U.S. states of domicile and by the Puerto Rico Office of Commissioner of Insurance, which all subject insurance operations to significant regulatory restrictions. As discussed in Part I. Item 1. Business and Part I. Item 1A. Risk Factors, these laws and regulations require, among other things, that our insurance subsidiaries maintain minimum solvency or premium to surplus ratio requirements, which limit the amount of dividends that can be paid to the holding company. The regulations also require approval of our service agreements with the applicable regulatory authority in order to prevent insurance subsidiaries from moving large amounts of cash to the less regulated holding company.
In addition to the above-mentioned sources of cash, we offer a Stock Investment Plan ("SIP"), which allows investors, policyholders, independent contractors and agents, employees and directors to directly purchase our stock. At our option, purchases of stock under the SIP can be made from newly issued or treasury stock, rather than in the open market, in which case, we can raise capital by selling our shares.
We renewed our Credit Facility with Regions Bank on May 3, 2024 for an additional three years. See Part IV. Item 15. Note 8. Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of the Credit Facility. The Credit Facility provides additional liquidity to the Company for short-term or longer-term needs. As of December 31, 2024, we have not borrowed any money under the Credit Facility.
INSURANCE COMPANY SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of our insurance operations are primarily met by premium revenues, investment income and proceeds from investment maturities, calls or sales. Primary cash needs are for payments of policyholder benefits, investment purchases, and operating expenses. We manage our insurance operations in order to ensure that we have stable and reliable sources of cash flow to meet our obligations. As we have discussed, we have been growing our domestic business by developing new products and expanding our distribution channels, which has led to an increase in first year premiums (i.e., new sales) of 71% from 2023 to 2024. When selling new policies, we incur upfront policy acquisition costs, such as agent commission payments. While historically, cash flows from our operations have been sufficient to meet our cash needs, we entered into the RGA Agreement to help with some of the costs, and the insurance subsidiaries also have the available-for-sale fixed maturity investment portfolio available to create additional cash flows if required. Two of our insurance subsidiaries are members of the Federal Home Loan Bank ("FHLB") of Dallas. FHLB membership provides the insurance subsidiaries with access to various
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CITIZENS, INC.
low-cost collateralized borrowings and funding agreements. While not the only source of additional liquidity, the FHLB could provide the insurance subsidiaries with an additional source of liquidity, if needed.
We believe that we have adequate capital resources and ability to obtain additional capital if needed to support the short-term and longer-term liquidity requirements of our insurance operations. See Contractual Obligations and Off-balance Sheet Arrangements below for a discussion of known and estimated cash needs. Cash flow projections and cash flow tests under various market interest rate scenarios are performed annually to assist in evaluating liquidity needs and adequacy.
Trends, Demands and Restrictions on our Uses of Cash
Payments of benefits for claims and surrenders are our largest use of cash. There are three primary components of these payments: death claims, surrenders and matured endowments.
Matured Endowments. Our endowment products have contractual maturity dates and provide the policyholder with alternatives once the policy matures - they can choose to take a lump sum payout or leave the money on deposit at interest with the Company. Approximately 18% of the endowments in force will mature in the next five years, totaling approximately 6% of our in force business as of December 31, 2024. Policyholder election behavior is unknown, but if too many policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities. Meeting these distributions could require the Company to sell its investments at inopportune times to pay policyholder withdrawals. Alternatively, if the policyholders were to leave the money on deposit with the Company at interest, our profitability could be impacted if the product guaranteed rate is higher than the market rate we are earning on our investments. We currently anticipate that our available operating cash flow and capital resources will be adequate to meet our needs for funds, but we are closely monitoring our policyholder behavior patterns, and in 2024, introduced a new product designed to allow policyholders with maturing endowments to purchase a new life insurance policy.
Surrenders. Surrender benefits, which have been higher than usual the last several years, slightly decreased during 2024. In order to mitigate the risk of early policyholder surrenders, we include provisions in our insurance policies, such as surrender charges, that help limit and discourage early withdrawals, but as many of our policies have reached the age where surrender charges have expired or significantly decreased, we have experienced high levels of surrenders. We believe that surrenders have been high due to other reasons, including the loss of one of our biggest distributors in Venezuela in 2018, increasing interest rates, which may encourage policyholders to seek higher rates of return in different investment products, post-pandemic beliefs that life insurance may not be as important as it was during the pandemic, and inflationary pressures, which may cause policyholders to want the cash values of their policies due to decreased purchasing power elsewhere. To the extent that early surrenders are higher than expected, our use of cash could be higher than expected. We continue to monitor surrenders and early withdrawals and focus on our retention initiatives and efforts to retain cash when policyholders surrender their policies.
Our liquidity is also negatively impacted with high matured endowments and surrenders, as they lead to lower renewal premiums.
Death Claims. Our product pricing assumes a certain mortality rate and thus a primary liquidity concern is the risk of higher than expected mortality experience. Our death benefit payments increased in the year ended December 31, 2024, which is expected as the amount of insurance issued has increased significantly over the past couple of years.
Another significant use of cash is payment of commissions. In our CICA Domestic business, we pay advance commissions on some of our insurance products, meaning we pay an agent a portion of their first-year commission immediately upon sale of a policy, rather than "as earned", or when premiums are received by us. Because of this, another liquidity concern is that rapid growth in first year sales of these products creates a significant increase in commission payments. CICA Domestic sales have increased significantly since the third quarter of 2023. To offset some of this strain on our capital, we entered into the RGA Agreement in the second quarter of 2024 and elected to cede 50% of our final expense business to RGA, which alleviates some of the strain. We may also seek other
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options, such as loans at the holding company level (from the Credit Facility or otherwise) that would allow us to reduce the liquidity risk should CICA Domestic's required commission payments exceed current resources.
See Part IV. Item 15. Note 8. Commitments and Contingencies, as well as Part I. Item 3. Legal Proceedings - Trade Secret Lawsuit, for a discussion of the trade secret lawsuit, which could negatively impact our cash if we do not succeed in our appeal.
Regulatory Restrictions on our Use of Cash
As discussed above, we are subject to regulatory capital requirements that could affect the Company’s ability to access capital from our insurance operations or cause the Company to have to put additional cash in our wholly-owned subsidiaries.
Our domestic companies are subject to minimum capital requirements set by the NAIC in the form of risk-based capital ("RBC"). RBC considers the type of business written by an insurance company, the quality of its assets, and various other aspects of an insurance company's business to develop a minimum level of capital called "Authorized Control Level Risk-Based Capital". This level of capital is then compared to an adjusted statutory capital that includes capital and surplus as reported under statutory accounting principles, plus certain investment reserves. Should the ratio of adjusted statutory capital to control level RBC fall below 200% for our domestic companies, a series of remedial actions by the affected company would be required. Additionally, we have a Capital Maintenance Agreement between Citizens and CICA Domestic, Citizens' wholly-owned subsidiary domiciled in Colorado, that would require Citizens to contribute capital to CICA Domestic in order to maintain a RBC level above 350%. At December 31, 2024, our domestic insurance subsidiaries were above the required minimum RBC levels and CICA Domestic was above 350%.
For CICA Domestic, commission advances are non-admitted assets, which means we need capital to "replace" these assets in order to maintain required regulatory capital levels. As discussed above, management is investigating various options in order to reduce both regulatory capital and liquidity risk should the capital required to support this pace of growth exceed current resources. Citizens may have to contribute capital to CICA Domestic to maintain the required RBC ratio.
CICA International is a Puerto Rico domiciled company. The Insurance Code of Puerto Rico does not specifically set forth minimum capital and surplus standards, but rather requires that an insurer submit a business plan for approval to the OIC that includes proposed minimum capital and surplus. CICA International is required to maintain a minimum of $750,000 in capital and maintain a premium to surplus ratio of 7 to 1. CICA International began issuing new business as of January 1, 2023 and received the transfer of all of CICA Bermuda's in force insurance business as of August 31, 2023. At December 31, 2024, CICA International exceeded the required minimum capital and related ratio.
Any capital that Citizens is required to contribute to its insurance subsidiaries would negatively impact the holding Company's capital resources and liquidity.
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CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Our material cash requirements from known contractual and other obligations primarily relate to our policy liabilities. Expected timing of those payments are as follows:
Year ended December 31, 2024
(In thousands)
Total Less than 1
Year 1 to 3 Years 3 to 5 Years More than 5
Years
Contractual Obligations:
Investment commitments $ 15,431 10,052 4,734 645 -
Real estate leases
7,789 1,252 2,521 2,776 1,240
Future policy benefit reserves 1,409,303 75,798 107,350 90,036 1,136,119
Policy claims payable 8,822 8,822 - - -
Other obligations
4,800 4,800 - - -
Total contractual obligations $ 1,446,145 100,724 114,605 93,457 1,137,359
Future Policy Benefit Reserves and Policy Claims Payable. As a life insurance company, the vast majority of our known cash requirements are for payments related to future policy benefits and policy claims payable, which we estimated in the table above. These amounts have been projected utilizing assumptions based upon our historical experience and anticipated future experience. We have reflected the majority of the obligation in the more than five-years category due to the age of the insured, years to policy maturity and our past experience with claims and surrenders.
Other Obligations. The other obligations are related to the legal accrual for litigation expense awarded in the trade secret lawsuit, as disclosed in Part I. Item 3. Legal Proceedings and in Part IV. Item 15. Note 8. Commitments and Contingencies of the notes to consolidated financial statements.
The Company does not have off-balance sheet arrangements at December 31, 2024. We do not utilize special purpose entities as investment vehicles, nor do we invest in any such entities that engage in speculative activities of any nature. In addition, we do not hedge our investment positions.
We have no known material cash requirements other than those described above.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that were uncertain at the time the estimate was made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our consolidated results of operations or financial condition. While we believe that our estimates, assumptions and judgments are reasonable, they are based on information presently available. Changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our financial position or results of operations.
Management has discussed the development and selection of its critical accounting estimates with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure presented. See Part IV. Item 15. Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements for further information on our accounting policies.
VALUATION OF INVESTMENTS IN FIXED MATURITY SECURITIES
Based upon current accounting guidance, investment securities must be classified as held-to-maturity, available-for-sale ("AFS") or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on
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securities. Fixed maturity securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity. The Company currently does not hold any fixed maturity securities classified as held-to-maturity. Fixed maturity securities classified as AFS are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income (loss) and are not reported in earnings until realized. Our fixed maturity securities consist primarily of bonds classified as AFS.
The Company monitors all fixed maturity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews. The Company evaluates whether a credit impairment exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; and (d) the payment structure of the security. The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process. Quantitative review includes information received from third-party sources such as financial statements, pricing and rating changes, liquidity and other statistical information. Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.
The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value. In addition, projections of expected future fixed maturity security cash flows may change based upon new information regarding the performance of the issuer. Any credit losses are presented as an allowance rather than as a write-down of AFS fixed maturity securities.
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs ("DAC") are costs that are incremental and directly related to the successful acquisition of new or renewal insurance contracts. Such costs include the incremental direct costs of contract acquisition, such as sales commissions; the portion of employees’ total compensation and payroll-related fringe benefits related directly to time spent performing acquisition activities, such as underwriting, issuing, and processing policies for contracts that have actually been acquired; and other costs related directly to acquisition activities that would not have been incurred if the contract had not been acquired.
Inherent in the capitalization and amortization of DAC are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization. Approximately 93% of our capitalized DAC are attributed to first year and renewal excess commissions. The remaining 7% are attributed to other costs that vary with and are directly related to the successful acquisition of new insurance business. Those costs generally include costs related to the production, underwriting and issuance of new business.
DAC is amortized on a constant level basis over the expected term of the related contracts to approximate straight-line amortization. For the Life Insurance segment, the constant level basis used is policy count in force. For the Home Service Insurance segment, the constant level basis used is face amount in force. The constant level bases used for amortization are projected using mortality and lapse assumptions that are based on the Company’s experience, industry data, and other factors at the end of each reporting period and are consistent with those used for the liability for future policy benefit life reserves. Annually, the Company completes experience studies to evaluate mortality and lapse assumptions. If those assumptions are updated, the DAC amortization basis is recalculated and the impact of the assumption change will be reflected in the cohort level amortization in future periods.
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POLICY LIABILITIES
As premium revenue is recognized, a liability for future policy benefits is accrued. The liability for a future policy benefit is the present value of estimated future policy benefits to be paid to or on behalf of policyholders less the present value of estimated future net premiums to be collected from policyholders. The liability is estimated using current assumptions that include investment yields, discount rate, mortality, lapses and withdrawals. These current assumptions are based on judgements that consider the Company’s historical experience, industry data, and other factors. Annually, the Company completes experience studies to evaluate mortality and lapse assumptions. The results of these studies are used to update current year best estimate assumptions used in establishing benefit liabilities and DAC.
The current discount rate assumption is a yield curve that equals the yield of an upper-medium grade fixed income instrument, based on A-quality corporate bonds. The current discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in other comprehensive income. For liability cash flows that are projected beyond the duration of market-observable A credit-rated fixed-income instruments, the Company uses the last market-observable yield level and uses linear interpolation to determine yield assumptions for durations that do not have market observable yields. The locked-in discount rate for policies issued prior to the LDTI transition date equals the rate set at contract issuance. For current year issues, the locked-in discount rate is the average of the current year quarterly discount rates and will change throughout the year as new discount rates are calculated, with the change reflected in net income.
TAX ACCOUNTING
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in net income in the period in which the change is enacted. CICA International and CICA Bermuda, wholly-owned subsidiaries of Citizens, are considered controlled foreign corporations for U.S. federal tax purposes. As a result, the insurance activity of CICA International and CICA Bermuda are subject to Subpart F of the Internal Revenue Code and are included in Citizens taxable income on its U.S. federal income tax return. Due to the 0% enacted tax rate in Bermuda for all periods prior to the transfer of CICA Bermuda's insurance in force business to CICA International, there are no deferred taxes recorded for CICA Bermuda's temporary differences. The Government of Puerto Rico approved a tax exemption decree for CICA International which freezes the income tax rate at 0% on taxable earnings up to $1.2 million and 4% on any taxable earnings in excess of $1.2 million for a minimum of 15 years.
As required by U.S. GAAP, we evaluated the recoverability of deferred tax assets and the establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized. For the years ended December 31, 2024 and 2023, changes in market conditions, including rising interest rates, resulted in deferred tax assets related to the net unrealized capital losses in our investment portfolio. When assessing the need for a valuation allowance on the unrealized capital loss deferred tax assets, we asserted a tax planning strategy to hold a majority of the underlying securities to recovery or maturity. Our ability to assert such a tax planning strategy is dependent upon factors such as our asset/liability matching process, overall investment strategy, projected future product sales and expected liquidity needs. In the event these estimates differ from our prior estimates due to the receipt of new information, we may be required to significantly change the income tax expense recorded in the consolidated financial statements. This includes a further significant decline in the value of assets incorporated into our tax planning strategies which could lead to an increase in our valuation allowance on deferred tax assets having an adverse effect on current and future results.
RECENT ACCOUNTING PRONOUNCEMENTS
See Item 8. Financial Statements and Supplementary Data and "Accounting Pronouncements" in Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations and therefore are not required to provide the information required by this Item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the consolidated financial statements, the notes thereto, and the report of our independent registered public accounting firm, as listed on the table of contents.
All other schedules have been omitted as the required information is inapplicable or the information required is presented in the financial statements or the notes thereto filed elsewhere herein.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.
Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2024, the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2024 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and such information is accumulated and reported to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosure.
(b) MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the design and operating effectiveness of internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
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Organizations of the Treadway Commission ("COSO"). Based on this evaluation, management concluded that our internal control over financial reporting as of December 31, 2024 was effective.
Grant Thornton LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2024. Their attestation report is included in Item 9A(c) of this Annual Report.
(c) ATTESTATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Citizens, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Citizens, Inc. (a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control - Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements of the Company as of and for the year ended December 31, 2024, and our report dated March 13, 2025, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
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assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Miami, Florida
March 13, 2025
(d) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. OTHER INFORMATION
During the three months ended December 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Citizens, Inc. securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Board of Directors", "Corporate Governance", "Executive Officers" and "Other Matters" in our Proxy Statement.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. EXECUTIVE COMPENSATION
Item 11 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Board of Directors - Director Compensation", "Corporate Governance - Board Processes - Compensation Committee Interlocks and Insider Participation" and "Executive Compensation" in our Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item 12 of this Annual Report on Form 10-K incorporates by reference the information in the section entitled "Stock Ownership Information" in our Proxy Statement.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information regarding securities authorized for issuance under our equity compensation plan, the Citizens, Inc. Omnibus Incentive Plan, as of December 31, 2024. See Part IV. Item 15. Note 13. Stock Compensation in the notes to our consolidated financial statements for additional information regarding our Omnibus Incentive Plan.
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining for future issuance under equity compensation plans
Equity compensation plans approved by security holders 1,141,015 $ 2.64 1,882,065
Equity compensation plans not approved by security holders - - -
Total 1,141,015 $ 2.64 1,882,065

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Item 13 of this Annual Report on Form 10-K incorporates by reference the information in the section entitled "Corporate Governance" in our Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Item 14 of this Annual Report on Form 10-K incorporates by reference the information in the section entitled "Audit Committee Matters" in our Proxy Statement.
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PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Documents filed as part of this Report
(1) and (2) Financial Statements and Schedules
The financial statements and schedules listed on the following index to financial statements and financial statement schedules are filed under Part III. Item 8. Financial Statements and Supplementary Data as part of this Form 10-K.
Index to Consolidated Financial Statements and Financial Statement Schedules Page
Reference
Report of Independent Registered Public Accounting Firm (PCAOB ID: 248)
Financial Statements at December 31, 2024 and 2023 and for the Years Ended December 31, 2024 and 2023:
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
Note 2: Investments
Note 3: Fair Value Measurements
Note 4: Deferred Policy Acquisition Costs & Cost of Insurance Acquired
Note 5: Policyholders' Liabilities
Note 6: Policy Claim Liability
Note 7: Reinsurance
Note 8: Commitments and Contingencies
Note 9: Stockholders' Equity and Restrictions
Note 10: Segment and Other Operating Information
Note 11: Income Taxes
Note 12: Other Comprehensive Income (Loss)
Note 13: Stock Compensation
Note 14: Benefit Plans
Note 15: Related Party Transactions
Note 16: Quarterly Financial Information (Unaudited)
Note 17: Subsequent Events
Financial Statement Schedules at December 31, 2024 and 2023 and for the Years Ended December 31, 2024 and 2023:
Schedule II - Condensed Financial Information of Registrant
Schedule III - Consolidated Supplementary Insurance Information
Schedule IV - Consolidated Schedule of Reinsurance
All other schedules have been omitted because the required information is inapplicable or the information required is presented in the consolidated financial statements or the notes thereto filed elsewhere herein.
(3) Exhibits
See the Index of Exhibits.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Citizens, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Citizens, Inc. (a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 13, 2025 expressed an unqualified opinion.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assumptions used in the Estimation of the Liability for Future Policy Benefit Reserves - Life Insurance
As described further in Notes 1 and 5 to the consolidated financial statements, the Company estimates a liability for future policy benefit reserves which is calculated as the present value of estimated future policy benefits to be paid to or on behalf of policyholders of life insurance contracts, less the present value of estimated future net premiums to be collected from policyholders on those same life insurance contracts. Management’s estimate of the liability for future policy benefit reserves for life insurance was $1.17 billion as of December 31, 2024. The liability is estimated using actuarial assumptions including those for mortality and lapse. Changes to the mortality and lapse assumptions impact both the timing and amount of estimated future policy benefits to be paid and future net premiums to be collected from policyholders on life insurance contracts. These assumptions, which are updated annually, are based
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on judgements that consider the Company’s historical experience, industry data and other factors. We identified the updating of the mortality and lapse assumptions used in the estimation of the liability for future policy benefit reserves - life insurance as a critical audit matter.
The principal considerations for our determination that the updating of the mortality and lapse assumptions used in the estimation of the liability for future policy benefit reserves for life insurance contracts is a critical audit matter is that the updating of these assumptions requires management to make significant assumptions regarding mortality and lapse based on historical experience, industry data and other factors. As such, auditing the updating of such assumptions involved subjective and complex auditor judgment, including the involvement of an actuarial specialist to assess the reasonableness of these assumptions.
Our audit procedures related to the updating of the mortality and lapse assumptions used in the estimation of the liability for future policy benefit reserves - life insurance included the following, among others.
•We tested the design and operating effectiveness of management’s review control over the mortality and lapse assumption updating and approval processes.
•With the assistance of an actuarial specialist, we evaluated management’s methodologies and assessed the reasonableness of the assumptions for mortality and lapse used in management’s calculation of future policy benefit reserves on life insurance contracts.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2021.
Miami, Florida
March 13, 2025
December 31, 2024 | 10-K 60
CITIZENS, INC.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
December 31,
(In thousands)
2024 2023
Assets:
Investments:
Fixed maturity securities, available-for-sale, at fair value (amortized cost: $1,401,301 and $1,389,038 in 2024 and 2023, respectively)
$ 1,220,961 1,238,981
Equity securities, at fair value 5,447 5,282
Policy loans 71,216 75,359
Other long-term investments (portion measured at fair value $93,337 and $82,460 in 2024 and 2023, respectively)
93,604 82,725
Total investments 1,391,228 1,402,347
Cash and cash equivalents (restricted portion: $1,554 and none in 2024 and 2023, respectively)
29,271 26,997
Accrued investment income 17,546 17,360
Reinsurance recoverable 6,941 3,991
Deferred policy acquisition costs 199,635 175,768
Cost of insurance acquired 9,446 10,043
Federal income tax receivable 148 1,546
Property and equipment, net 10,574 11,809
Due premiums 11,721 11,264
Other assets (less allowance for losses of $516 and $408 in 2024 and 2023, respectively)
8,815 7,803
Total assets $ 1,685,325 1,668,928
See accompanying Notes to Consolidated Financial Statements.
December 31, 2024 | 10-K 61
CITIZENS, INC.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
December 31, continued
(In thousands, except share amounts)
2024 2023
Liabilities and Stockholders' Equity:
Liabilities:
Policy liabilities:
Future policy benefit reserves:
Life insurance $ 1,172,034 1,229,253
Accident and health insurance 1,071 889
Total future policy benefit reserves 1,173,105 1,230,142
Policyholders' funds:
Annuities 149,977 133,216
Dividend accumulations 47,768 44,960
Premiums paid in advance 31,182 32,446
Policy claims payable 8,822 6,637
Other policyholders' funds 7,271 7,363
Total policyholders' funds 245,020 224,622
Total policy liabilities 1,418,125 1,454,764
Commissions payable 4,546 3,445
Deferred federal income tax liability, net 3,442 1,102
Other liabilities 48,857 37,488
Total liabilities 1,474,970 1,496,799
Commitments and contingencies (Notes 7 and 8)
Stockholders' Equity:
Common stock:
Class A, no par value, 100,000,000 shares authorized, 54,235,165 and 53,882,661 shares issued and outstanding as of December 31, 2024 and 2023, respectively, including shares in treasury of 4,327,810 in 2024 and 2023
269,799 268,675
Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2024 and 2023, including shares in treasury of 1,001,714 in 2024 and 2023
3,184 3,184
Retained earnings
57,062 42,150
Accumulated other comprehensive income (loss)
(95,965) (118,155)
Treasury stock, at cost (23,725) (23,725)
Total stockholders' equity 210,355 172,129
Total liabilities and stockholders' equity $ 1,685,325 1,668,928
See accompanying Notes to Consolidated Financial Statements.
December 31, 2024 | 10-K 62
CITIZENS, INC.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
Years Ended December 31,
(In thousands, except share amounts)
2024 2023
Revenues:
Premiums:
Life insurance $ 171,561 164,609
Accident and health insurance 1,785 1,637
Property insurance (18) 793
Net investment income 69,712 69,254
Investment related gains (losses), net (2,626) 760
Other income 4,587 3,627
Total revenues 245,001 240,680
Benefits and Expenses:
Insurance benefits paid or provided:
Claims and surrenders 146,082 135,993
Increase (decrease) in future policy benefit reserves (4,286) (5,624)
Policyholder liability remeasurement (gain) loss 4,756 4,460
Policyholders' dividends 5,355 5,542
Total insurance benefits paid or provided 151,907 140,371
Commissions 49,118 39,241
Other general expenses 52,266 47,131
Capitalization of deferred policy acquisition costs (41,302) (28,301)
Amortization of deferred policy acquisition costs 17,435 15,460
Amortization of cost of insurance acquired 597 604
Total benefits and expenses 230,021 214,506
Income before federal income tax
14,980 26,174
Federal income tax expense (benefit) 68 1,737
Net income
14,912 24,437
Per Share Amounts:
Basic earnings per share Class A common stock $ 0.30 0.49
Diluted earnings per share Class A common stock 0.29 0.48
Other Comprehensive Income (Loss):
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) arising during period (30,982) 50,894
Reclassification adjustment for losses (gains) included in net income
699 756
Unrealized gains (losses) on fixed maturity securities, net (30,283) 51,650
Change in current discount rate for liability for future policy benefits 56,613 (34,790)
Income tax expense (benefit) on other comprehensive income items 4,140 (2,029)
Other comprehensive income (loss) 22,190 18,889
Total comprehensive income (loss) $ 37,102 43,326
See accompanying Notes to Consolidated Financial Statements.
December 31, 2024 | 10-K 63
CITIZENS, INC.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Common Stock Retained Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders'
Equity
(In thousands) Class A Class B
Balance at December 31, 2022 $ 268,147 3,184 16,309 (137,044) (22,806) 127,790
Comprehensive income (loss):
Net income (loss) - - 24,437 - - 24,437
Other comprehensive income (loss) - - - 18,889 - 18,889
Total comprehensive income (loss) - - 24,437 18,889 - 43,326
Acquisition of treasury stock - - - - (919) (919)
Stock-based compensation 528 - - - - 528
Other (1)
- - 1,404 - - 1,404
Balance at December 31, 2023 268,675 3,184 42,150 (118,155) (23,725) 172,129
Comprehensive income (loss):
Net income (loss) - - 14,912 - - 14,912
Other comprehensive income (loss) - - - 22,190 - 22,190
Total comprehensive income (loss) - - 14,912 22,190 - 37,102
Stock-based compensation 1,124 - - - - 1,124
Balance at December 31, 2024 $ 269,799 3,184 57,062 (95,965) (23,725) 210,355
(1) See Note 11 in the Notes to Consolidated Financial Statements for more details.
See accompanying Notes to Consolidated Financial Statements.
December 31, 2024 | 10-K 64
CITIZENS, INC.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years Ended December 31,
(In thousands)
2024 2023
Cash Flows from Operating Activities:
Net income
$ 14,912 24,437
Adjustments to reconcile net income to net cash provided by operating activities:
Investment related (gains) losses on sales of investments and other assets, net
2,626 (760)
Net deferred policy acquisition costs (23,867) (12,841)
Amortization of cost of insurance acquired 597 604
Depreciation 619 515
Amortization of premiums and discounts on investments 5,116 4,940
Stock-based compensation 1,517 588
Deferred federal income tax expense (benefit) (1,800) 860
Change in:
Accrued investment income (186) (229)
Reinsurance recoverable (2,950) 569
Due premiums (457) 565
Future policy benefit reserves (423) (4,062)
Other policyholders' liabilities 22,476 10,325
Federal income tax payable 1,398 (922)
Commissions payable and other liabilities 13,754 (917)
Other, net (1,414) (1,616)
Net cash provided by operating activities 31,918 22,056
Cash Flows from Investing Activities:
Sales of fixed maturity securities, available-for-sale 15,161 29,883
Maturities and calls of fixed maturity securities, available-for-sale 51,234 29,488
Purchases of fixed maturity securities, available-for-sale (84,412) (72,802)
Sales of equity securities - 6,631
Principal payments on mortgage loans 9 7
(Increase) decrease in policy loans, net
4,143 3,414
Sales of other long-term investments
3,565 5,394
Purchases of other long-term investments (16,210) (17,318)
Purchases of property and equipment (663) (442)
Maturities of short-term investments - 750
Sales of short-term investments
- 499
Net cash used in investing activities (27,173) (14,496)
See accompanying Notes to Consolidated Financial Statements.
December 31, 2024 | 10-K 65
CITIZENS, INC.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years Ended December 31,
(In thousands)
2024 2023
Cash Flows from Financing Activities:
Annuity deposits $ 7,500 7,129
Annuity withdrawals (9,578) (9,686)
Acquisition of treasury stock - (919)
Other share repurchases
(393) (60)
Net cash used in financing activities (2,471) (3,536)
Net increase (decrease) in cash and cash equivalents 2,274 4,024
Cash and cash equivalents at beginning of year 26,997 22,973
Cash and cash equivalents at end of year $ 29,271 26,997
SUPPLEMENTAL DISCLOSURE OF OPERATING ACTIVITIES:
Cash paid for income taxes during 2024 and 2023 was $0.5 million and $1.8 million, respectively.
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 2024 and 2023, various fixed maturity issuers exchanged securities with book values of $3.7 million and $5.4 million, respectively, for securities of equal value.
The Company recognized right-of-use assets of $0.1 million in exchange for new operating lease liabilities during 2023 and none during 2024.
See accompanying Notes to Consolidated Financial Statements.
December 31, 2024 | 10-K 66
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying consolidated financial statements of Citizens, Inc. and its wholly-owned subsidiaries have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP").
The consolidated financial statements include the accounts and operations of Citizens, Inc. ("Citizens" or the "Company"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA Domestic"), CICA Life Ltd. ("CICA Bermuda"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC"), Computing Technology, Inc. ("CTI"), Nexo Global Services LLC, a Puerto Rico holding company ("Nexo") and its wholly-owned subsidiaries, CICA Life A.I., a Puerto Rico company ("CICA International") and Nexo Enrollment Services LLC, a Puerto Rico service company ("NES"). All significant inter-company accounts and transactions have been eliminated. Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company," "we," "it," "us," or "our".
Our Life Insurance segment operates through CICA Domestic and CICA International.
CICA Domestic. Prior to July 1, 2023, our domestic life insurance business operated through CICA Domestic and Citizens National Life Insurance Company ("CNLIC"). CNLIC merged into CICA Domestic on July 1, 2023. CICA Domestic issues primarily whole life, final expense and life products with living benefits throughout the U.S.
CICA International. Until December 31, 2022, our international life insurance business operated through CICA Bermuda. Beginning January 1, 2023, all new international policies are issued by CICA International and on August 31, 2023, CICA Bermuda transferred all of its insurance in force business to CICA International. CICA International offers U.S. dollar-denominated products to non-U.S. residents/citizens internationally, including endowment products, which are principally accumulation contracts that incorporate an element of life insurance protection and whole life insurance. These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional increasing or decreasing coverage and annuity benefits to enhance accumulations.
NES provides services to policyholders of CICA International.
Our Home Service Insurance segment operates through our subsidiaries SPLIC and MGLIC, and focuses on the life insurance needs of the middle- and lower-income markets, primarily in Louisiana, Mississippi and Arkansas. Our products in this segment consist primarily of small face amount whole life, industrial life and pre-need policies, which are designed to fund final expenses for the insured, primarily consisting of funeral and burial costs. SPLIC also issues critical illness policies. Prior to June 30, 2023, SPFIC issued dwelling and contents property insurance policies. As of June 30, 2023, the Company ceased all operations for SPFIC and SPFIC was dissolved in 2024.
CTI provides data processing systems and services to the Company.
SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Investment securities are classified as held-to-maturity ("HTM"), available-for-sale ("AFS") or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Fixed maturity securities are classified as HTM and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity. Securities classified as AFS are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income (loss) and are not reported in earnings until realized. Our fixed maturity securities consist primarily of bonds classified as AFS. The Company does not classify any fixed maturity securities as trading or as HTM. Equity securities are measured at fair value with the change in fair value recorded through the consolidated statements of operations and comprehensive income (loss).
December 31, 2024 | 10-K 67
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Unrealized gains (losses) of fixed maturity securities held as AFS are shown as a separate component of stockholders' equity, net of tax, and is a separate component of other comprehensive income (loss).
The Company assesses AFS fixed maturity securities in an unrealized loss position for expected credit losses. First, we assess whether we intend to sell, or it is more likely than not that we will be required to sell, the security before recovery of its amortized cost. If either of the criteria is met, the security's amortized cost is written down to its fair value. For AFS fixed maturity securities that do not meet either criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If management deems a credit loss has occurred, the impairment is recorded through an allowance for credit losses rather than as a write-down. Changes in the allowance for credit losses are recorded through investment related gains and losses. Any impairment that has not been recorded through an allowance for credit losses is recognized in accumulated other comprehensive income (loss) on our consolidated balance sheets.
The Company made a policy election to exclude accrued interest from the amortized cost of AFS fixed maturity securities and report accrued interest separately in accrued investment income on the consolidated balance sheets. AFS fixed maturity securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.
Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
The Company from time to time may dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.
Policy loans are reported at unpaid principal balances.
Other long-term investments consist primarily of investments in limited partnerships, Federal Home Loan Bank ("FHLB") common stock and mortgage loans. We initially estimate the fair value of investments in limited partnerships by reference to the transaction price. Subsequently, we obtain the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are audited annually. Recognition of investment income on these funds is delayed due to the availability of the related financial statements, which are generally obtained from the partnerships' general partners. As a result, our limited partnerships are generally reported on a three-month delay.
We are a member of the FHLB of Dallas and such membership requires members to own stock in the FHLB. Our FHLB stock is carried at amortized cost, which approximates fair value.
Mortgage loans on real estate are reported at unpaid principal balances.
The Company had restricted cash equivalents and fixed maturity securities with an aggregate fair value of $7.9 million and $8.6 million at December 31, 2024 and 2023, respectively, on deposit with various state regulatory authorities to fulfill statutory requirements.
SHORT-TERM INVESTMENTS
The Company considers investments maturing within one year at acquisition as short-term. These securities are carried at fair value.
CASH AND CASH EQUIVALENTS
Cash consists of balances on hand and on deposit in banks and financial institutions. Cash equivalents consists of securities whose duration does not exceed 90 days at the date of acquisition. Restricted cash represents amounts
December 31, 2024 | 10-K 68
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
on deposit with state regulatory authorities noted above and our appeal bond discussed in Note 8. Commitments and Contingencies.
REINSURANCE RECOVERABLE
Reinsurance recoverable includes expected reimbursements for policyholder claim amounts in excess of the Company's retention, as well as profit sharing and experience refund accruals. Reinsurance recoverable is reduced for estimated uncollectible amounts, if any.
Reinsurance premiums, benefits and expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. The cost of reinsurance related to long duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. The cost of reinsurance related to short duration contracts is accounted for over the coverage period. Profit-sharing and similar adjustable provisions are accrued based on the experience of the underlying policies.
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs (“DAC”) are costs that are incremental and directly related to the successful acquisition of new or renewal insurance contracts. Such costs include the incremental direct costs of contract acquisition, such as sales commissions; the portion of employees’ total compensation and payroll-related fringe benefits related directly to time spent performing acquisition activities, such as underwriting, issuing and processing policies for contracts that have actually been acquired; and other costs related directly to acquisition activities that would not have been incurred if the contract had not been acquired.
Contracts are grouped by contract type and issue year into cohorts consistent with the grouping used in estimating the associated liability. DAC is amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. For the Life Insurance segment, the constant level basis used is policy count in force. For the Home Service Insurance segment, the constant level basis used is face amount in force. The constant level bases used for amortization are projected using mortality and lapse assumptions that are based on the Company’s experience, industry data, and other factors at the end of each reporting period and are consistent with those used for the liability for future policy benefit life reserves. Annually, the Company completes experience studies with respect to mortality and lapse assumptions. If those assumptions are updated, the DAC amortization basis is recalculated and the effect of the assumption change will be reflected in the cohort level amortization in future periods.
Inherent in the capitalization and amortization of DAC are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization. Approximately 93% of our capitalized DAC are attributed to first year and renewal excess commissions. The remaining 7% are attributed to other costs that vary with and are directly related to the successful acquisition of new insurance business. Those costs generally include costs related to the production, underwriting and issuance of new business.
Amortization of DAC is included in the consolidated statements of operations and comprehensive income (loss). The DAC balance on the consolidated balance sheets is reduced for actual experience in excess of expected experience. Changes in future estimates are recognized prospectively over the remaining expected contract term.
COST OF INSURANCE ACQUIRED
The Company recognizes an intangible asset that arises in the application of U.S. GAAP purchase accounting as the difference between the reported value and the fair value of insurance contract liabilities, or comparable amounts determined in purchased insurance business combinations. This intangible asset is referred to as the Cost of Insurance Acquired (“COIA”), which is amortized on a basis consistent with DAC, such that it is amortized in proportion to policies in force for the Life Insurance segment and face amount in force for the Home Service Insurance segment to approximate straight-line amortization.
A recoverability test that considers, among other things, actual experience and projected future experience is performed at least annually. These annual recoverability tests are based initially on an estimate of the available premium (gross premium less the benefit and expense portion of premium) for the next 50 years. Management
December 31, 2024 | 10-K 69
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
believes that our COIA is recoverable for the years ended December 31, 2024 and 2023. This belief is based upon the analysis performed on estimated future results of the block and our annual recoverability testing.
The value of COIA resulting from our various acquisitions was determined based on the present value of future profits discounted at annual rates ranging from 3.7% to 8.5%.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the useful lives of the assets, ranging from three years to thirty years.
The following is a summary of property and equipment.
December 31,
(In thousands)
2024 2023
Property and equipment:
Home office, land and buildings $ 3,995 3,980
Furniture and equipment 1,359 1,389
Electronic data processing equipment and computer software 6,044 7,800
Real estate and equipment leases (See Note 8)
7,789 9,073
Total property and equipment 19,187 22,242
Accumulated depreciation (8,613) (10,433)
Property and equipment, net
$ 10,574 11,809
The Company has several lease agreements for real estate and equipment, such as its corporate home office, Puerto Rico service center and several district office locations related to our Home Service Insurance segment. The Company recognizes these lease agreements on the consolidated balance sheets as a right-of-use asset and a corresponding lease liability. The Company uses its estimated incremental borrowing rate, which is derived from information available at lease commencement date, in determining the present value of lease payments.
FUTURE POLICY BENEFITS AND EXPENSES
As premium revenue is recognized, a liability for future policy benefits, which is the present value of estimated future policy benefits to be paid to or on behalf of policyholders less the present value of estimated future net premiums to be collected from policyholders, is accrued. The liability is estimated using current assumptions that include discount rate, mortality and lapses. These current assumptions are based on judgements that consider the Company’s historical experience, industry data, and other factors.
Our traditional and limited-payment contracts are grouped into cohorts by contract type and issue year. Our reporting cohorts are (i) Permanent, which summarizes insurance policies with premiums payable over the lifetime of the policy, and (ii) Permanent Limited Pay, which summarizes insurance policies with premiums payable for a limited time after which the policy is fully paid up. Both reporting cohorts include whole life and endowment policies. The liability is adjusted for differences between actual and expected experience. The Company reviews its historical cash flow assumptions quarterly and in the third quarter of the year, the Company reviews its future cash flow assumptions. The net premium ratio used to calculate the liability is updated each quarter based on the current period's actual experience relative to expected experience. The revised net premium ratio is used to derive an updated liability for future policy benefits as of the beginning of the current reporting period, discounted at the locked-in discount rate. This amount is then compared to the carrying amount of the liability as of that same date, before the updating of cash flow assumptions, to determine the current period change in liability estimate. The current period change in the liability is the policyholder liability remeasurement gain or loss and is presented as a separate component of total insurance benefits paid or provided in the consolidated statements of operations and comprehensive income (loss). In subsequent periods, the revised net premiums are used to measure the liability for future policy benefits, subject to future revisions.
December 31, 2024 | 10-K 70
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
For traditional and limited-payment contracts, the current discount rate assumption is a yield curve that equals the yield of an upper-medium grade fixed income instrument, based on A-quality corporate bonds. The Company selects fixed-income instruments that have been A rated by one of the major credit rating agencies, such as Moody’s or Standard & Poor’s. The current discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in other comprehensive income. For liability cash flows that are projected beyond the duration of market-observable A credit-rated fixed-income instruments, the Company uses the last market-observable yield level and linear interpolation to determine yield assumptions for durations that do not have market observable yields. The locked-in discount rate for policies issued prior to transition equals the rate set at contract issuance. For current year issues, the locked-in discount rate is the average of the current year quarterly discount rates and will change throughout the year as new discount rates are calculated, with the change reflected in net income.
The accrued account balance for non-traditional life insurance and investment contracts is computed as deposits net of withdrawals made by the contract holder, plus amounts credited based on contract specifications, less contract fees and charges assessed, plus any additional interest. Annuity interest crediting rates range from 2.5% to 5.5% annually. Benefits and expenses are charged against the account balance to recognize costs as incurred over the estimated lives of the contracts. Expenses include interest credited to contract account balances and benefits paid in excess of contract account balances.
Unpaid claims on accident and health policies represent the estimated liability for benefit expenses, both reported but not paid and incurred but not reported to the Company. The liability for incurred but not reported claims includes estimates for additional unreported claim amounts due derived from previously reported claims. Liabilities for unpaid claims are estimated using individual case basis valuations and statistical analysis. Those estimates are subject to the effects of trends in claim severity and frequency.
Anticipated investment income is not considered in determining whether a premium deficiency exists with respect to short-duration contracts. Premium deposits accrue interest at rates ranging from 1.5% to 6.0% per annum. The cost of insurance is included in the premium when collected and interest is credited annually to deposit accounts.
DEFERRED PROFIT LIABILITY
For limited-payment products, gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”). Gross premiums are measured using assumptions consistent with those used in the measurement of the liability for future policy benefit life reserves, including discount rate, mortality and lapses.
The DPL is amortized and recognized in net income within the increase (decrease) in future policy benefit reserves. The amortization basis for the DPL is the present value of insurance in force for life insurance contracts. Interest is accreted on the balance of the DPL using the locked-in discount rate. The Company reviews and updates its estimates of cash flows for the DPL at the same time as the estimates of cash flows for the liability for future policy benefit life reserves. The DPL is updated each quarter based on the current period's actual experience relative to expected experience with the changes recorded within the increase (decrease) in future policy benefit reserves in the consolidated statements of operations and comprehensive income (loss). On the consolidated balance sheets, DPL is recorded as a component of the liability for future policy benefit life reserves.
PARTICIPATING POLICIES
At December 31, 2024 and 2023, participating business approximated 46% and 51%, respectively, of direct life insurance in force.
Policyholder dividends are determined based on the discretion of the board of directors of the policy issuing subsidiary. Policyholder dividends are accrued over the premium paying periods of the insurance contract.
December 31, 2024 | 10-K 71
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
CONTINGENCIES
An estimated loss from a contingency is accrued and charged to results of operations only if both of the following conditions are met:
1.Information available prior to the issuance of the consolidated financial statements indicates that it is probable (virtual certainty is not required) that an asset has been impaired or a liability incurred as of the date of the consolidated financial statements; and
2.The amount of the loss can be reasonably estimated.
Reasonable estimation of a possible loss does not require estimating a single amount of the loss. It requires that a loss be accrued if it can be estimated within a range. If an amount within the range is a better estimate than any other amount within the range, that amount is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued.
PREMIUM REVENUE AND RELATED EXPENSES
Premiums on life policies are recognized as earned when due. Premiums paid in advance on the consolidated balance sheets are held on deposit and accrue interest at rates ranging from 1.5% to 6.0% until such time as the premiums become due. Premiums on accident and health policies are recognized as revenue over the contract period on a pro rata basis. Benefits and expenses are associated with earned premiums resulting in the recognition of profits over the estimated lives of the contracts. This matching is accomplished by means of a provision for future policy benefits and the capitalization and amortization of deferred policy acquisition costs and amortization of deferred profit liability for limited pay plans.
Annuity policies, primarily flexible premium fixed annuity products, are accounted for in a manner consistent with accounting for interest bearing financial instruments. Premium receipts are not reported as revenue, rather as deposit liabilities to annuity contracts. The annuity products issued do not include fees or other such charges. Reserves are set up for surrenders and death benefits. Acquisition costs and premium loads are capitalized and amortized.
STOCK COMPENSATION
The Company accounts for stock compensation arrangements using a fair-value based method. The Company determines the fair value of performance-based and restricted stock unit awards on the date of grant.
The fair value of time-based awards is recognized over the period during which an award holder is required to provide services in exchange for the award, know as the requisite service period, which is typically the vesting period using the straight-line method. The Company records forfeitures and adjusts compensation expense on stock-based awards in the period they occur.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered.
A deferred tax asset is recorded only if a determination is made that it is more likely than not that the tax treatment on which the deferred tax asset depends will be sustained in the event of an audit. These determinations inherently involve management's judgment. In addition, the Company must record a tax valuation allowance with respect to deferred tax assets if it is more likely than not that the tax benefit will not be realized.
The Company releases stranded tax effects in accumulated other comprehensive income on an aggregate portfolio basis.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share are
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
computed under the if-converted method for convertible securities and the treasury stock method for warrants, giving effect to all potential dilutive common stock, including options, warrants and convertible/redeemable preferred stock. The basic and diluted earnings per share of Class B common stock are one half the earnings per share of the Class A common stock. We hold 100% of our Class B common stock in treasury.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.
Significant estimates include those used in the evaluation of credit losses on fixed maturity securities, actuarially determined assets and liabilities and assumptions, valuation allowance on deferred tax assets and contingencies relating to litigation and regulatory matters. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the consolidated financial statements.
RECLASSIFICATIONS
Certain amounts presented in prior years have been reclassified to conform to the current presentation.
ACCOUNTING PRONOUNCEMENTS
ACCOUNTING STANDARDS ADOPTED
On November 27, 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This amendment expands a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments became effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. As this ASU only requires additional disclosures about the Company's operating segments, there was no material impact to the consolidated financial statements.
On December 14, 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the state and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024 and early adoption and retrospective application are permitted. The Company adopted this pronouncement at December 31, 2024 using the retrospective approach. As this ASU only requires additional disclosures about the Company's taxes, there was no material impact to the consolidated financial statements.
ACCOUNTING STANDARDS NOT YET ADOPTED
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to enhance expense disclosures by requiring additional disaggregation of certain costs and expenses, on an interim and annual basis, within the footnotes to the financial statements. This ASU is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and the amendments may be applied either prospectively or retrospectively. While this ASU will impact only our disclosures and not our financial condition and results of operations, we are currently evaluating the impact of adopting this pronouncement on the consolidated financial statements.
December 31, 2024 | 10-K 73
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
No other new accounting pronouncement issued or effective during 2024 had, or is expected to have, a material impact on our consolidated financial statements.
(2) INVESTMENTS
The Company invests primarily in fixed maturity securities, which totaled 86.0% of total cash and invested assets at December 31, 2024.
Carrying Value as of December 31,
(In thousands, except for %)
2024 % 2023 %
Cash and invested assets:
Fixed maturity securities $ 1,220,961 86.0 % $ 1,238,981 86.7 %
Equity securities 5,447 0.4 5,282 0.4
Policy loans 71,216 5.0 75,359 5.3
Other long-term investments 93,604 6.6 82,725 5.8
Cash and cash equivalents 29,271 2.0 26,997 1.8
Total cash and invested assets $ 1,420,499 100.0 % $ 1,429,344 100.0 %
The following tables represents the amortized cost, gross unrealized gains and losses and fair value of fixed maturity securities as of the dates indicated.
December 31, 2024 (In thousands)
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Fixed maturity securities:
U.S. Treasury securities $ 5,939 85 115 5,909
U.S. Government-sponsored enterprises 3,152 152 - 3,304
States and political subdivisions 300,757 1,087 33,542 268,302
Corporate:
Financial 272,925 1,593 33,285 241,233
Consumer 263,242 899 45,955 218,186
Utilities 126,361 220 22,770 103,811
Energy 79,247 40 9,959 69,328
Communications 70,896 111 9,910 61,097
All other 117,387 315 16,368 101,334
Commercial mortgage-backed 315 1 5 311
Residential mortgage-backed 106,661 7 13,026 93,642
Asset-backed 54,419 891 806 54,504
Total fixed maturity securities $ 1,401,301 5,401 185,741 1,220,961
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 2023 (In thousands)
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Fixed maturity securities:
U.S. Treasury securities $ 5,983 127 48 6,062
U.S. Government-sponsored enterprises 3,404 250 1 3,653
States and political subdivisions 314,203 2,160 29,132 287,231
Corporate:
Financial 266,485 2,066 31,255 237,296
Consumer 250,672 2,145 37,094 215,723
Utilities 123,625 615 20,253 103,987
Energy 73,808 64 8,049 65,823
Communications 74,029 309 8,892 65,446
All other 111,124 647 12,439 99,332
Commercial mortgage-backed 171 - - 171
Residential mortgage-backed 107,174 9 10,060 97,123
Asset-backed 58,360 290 1,516 57,134
Total fixed maturity securities $ 1,389,038 8,682 158,739 1,238,981
The Company's investments in equity securities are shown below.
Fair Value as of December 31,
(In thousands)
2024 2023
Equity securities:
Bond mutual funds $ 739 740
Common stock 810 665
Non-redeemable preferred stock 7 7
Non-redeemable preferred stock fund 3,891 3,870
Total equity securities $ 5,447 5,282
VALUATION OF INVESTMENTS
AFS fixed maturity securities are reported in the consolidated financial statements at fair value. Equity securities are measured at fair value with the change in fair value recorded through net income (loss). The Company recognized net investment related gains of $0.2 million on equity securities held for the year ended December 31, 2024 and losses of $0.2 million on equity securities held for the year ended December 31, 2023.
The Company monitors all AFS fixed maturity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews. The Company evaluates whether a credit impairment exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; and (d) the payment structure of the security. The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process. Quantitative review includes information received from third-party sources such as financial statements, pricing and rating changes, liquidity and other statistical information. Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates. These assumptions require the use of significant management judgement and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value. In addition, projections of expected future fixed maturity security cash flows may change based upon new information regarding the performance of the issuer. Any credit losses are presented as an allowance rather than as a write-down on AFS fixed maturity securities management does not intend to sell or believes that it is more likely than not we will be required to sell.
The Company recorded no credit valuation losses on fixed maturity securities for the years ended December 31, 2024 and 2023.
For fixed maturity security investments that have unrealized losses as of December 31, 2024 and 2023, the gross unrealized losses and related fair values that have been in a continuous unrealized loss position by timeframe are as follows.
December 31, 2024 Less than 12 months Greater than 12 months Total
(In thousands, except for # of securities) Fair
Value Unrealized
Losses # of
Securities Fair
Value Unrealized
Losses # of
Securities Fair
Value Unrealized
Losses # of
Securities
Fixed maturity securities:
U.S. Treasury securities $ 835 51 3 435 64 5 1,270 115 8
States and political subdivisions 42,583 1,484 63 147,534 32,058 177 190,117 33,542 240
Corporate:
Financial 29,258 756 53 154,448 32,529 192 183,706 33,285 245
Consumer 37,231 2,053 57 161,795 43,902 216 199,026 45,955 273
Utilities 16,750 687 47 79,488 22,083 142 96,238 22,770 189
Energy 11,654 438 29 52,537 9,521 65 64,191 9,959 94
Communications 9,973 250 11 48,462 9,660 60 58,435 9,910 71
All Other 25,208 1,237 38 68,756 15,131 87 93,964 16,368 125
Commercial mortgage-backed 100 - 1 89 5 1 189 5 2
Residential mortgage-backed 160 2 11 93,231 13,024 84 93,391 13,026 95
Asset-backed 10,330 243 14 14,741 563 16 25,071 806 30
Total fixed maturity securities $ 184,082 7,201 327 821,516 178,540 1,045 1,005,598 185,741 1,372
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 2023 Less than 12 months Greater than 12 months Total
(In thousands, except for # of securities) Fair
Value Unrealized
Losses # of
Securities Fair
Value Unrealized
Losses # of
Securities Fair
Value Unrealized
Losses # of
Securities
Fixed maturity securities:
U.S. Treasury securities $ 1,203 40 5 65 8 2 1,268 48 7
U.S. Government-sponsored enterprises 221 1 1 - - - 221 1 1
States and political subdivisions 19,540 357 35 164,264 28,775 192 183,804 29,132 227
Corporate:
Financial 12,584 383 19 176,521 30,872 217 189,105 31,255 236
Consumer 10,175 265 16 176,725 36,829 223 186,900 37,094 239
Utilities 3,596 66 20 85,169 20,187 137 88,765 20,253 157
Energy 3,291 57 1 59,392 7,992 76 62,683 8,049 77
Communications 5,784 153 5 56,108 8,739 69 61,892 8,892 74
All Other 2,080 32 5 85,757 12,407 100 87,837 12,439 105
Residential mortgage-backed 849 38 5 95,806 10,022 86 96,655 10,060 91
Asset-backed 4,757 111 8 32,764 1,405 40 37,521 1,516 48
Total fixed maturity securities $ 64,080 1,503 120 932,571 157,236 1,142 996,651 158,739 1,262
In each category of our fixed maturity securities described above, we do not intend to sell our investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases. At December 31, 2024 and 2023, 99.2% and 99.4%, respectively, of the fair value of our fixed maturity securities portfolio was rated investment grade. While the losses are currently unrealized, we continue to monitor all fixed maturity securities on an on-going basis as future information may become available which could result in an allowance being recorded.
The unrealized losses on fixed maturity securities detailed in the previous tables are due to noncredit-related factors, including widening credit spreads and rising interest rates since purchase, which have little bearing on the recoverability of our investments, hence they are not recognized as credit losses. The fair value is expected to recover as the securities approach maturity or if market yields for such investments decline.
The amortized cost and fair value of fixed maturity securities at December 31, 2024 by contractual maturity are shown in the table below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date have been reflected based upon final stated maturity.
(In thousands) Amortized Cost Fair Value
Fixed maturity securities:
Due in one year or less $ 20,091 19,999
Due after one year through five years 141,692 140,359
Due after five years through ten years 252,359 244,946
Due after ten years 987,159 815,657
Total fixed maturity securities $ 1,401,301 1,220,961
There were no investments that were non-income producing for the years ended December 31, 2024 or 2023.
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Major categories of net investment income are summarized as follows:
Years ended December 31,
(In thousands)
2024 2023
Gross investment income:
Fixed maturity securities $ 60,940 60,127
Equity securities 302 630
Policy loans 5,597 6,011
Other long-term investments 4,846 4,509
Other 834 576
Total investment income 72,519 71,853
Investment expenses (2,807) (2,599)
Net investment income $ 69,712 69,254
The Company uses the specific identification method of the individual security to determine the cost basis used in the calculation of realized gains and losses related to security sales.
Years ended December 31,
(In thousands)
2024 2023
Fixed maturity securities:
Proceeds $ 15,161 29,883
Gross realized gains $ 131 53
Gross realized losses $ 225 602
Investment related gains and losses are as follows:
Years ended December 31,
(In thousands)
2024 2023
Investment related gains (losses):
Sales, calls and maturities:
Fixed maturity securities $ (699) (756)
Equity securities - 513
Other long-term investments (788) 342
Investment related gains (losses)
(1,487) 99
Change in fair value of equity securities 164 (190)
Change in fair value of limited partnerships (969) 912
Change in credit loss allowance (334) (61)
Net investment related gains (losses) $ (2,626) 760
(3) FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We hold AFS fixed maturity securities, which are carried at fair value with changes in fair value reported through other comprehensive income (loss). We also report our equity securities and certain other long-term investments at fair value with changes in fair value reported through the consolidated statements of operations and comprehensive income (loss).
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:
•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.
Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments.
Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes. These pricing models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments. All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, securities issued by states and political subdivisions and certain mortgage and asset-backed securities.
Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information. We have no investments in this category.
The following tables set forth our assets that are measured at fair value on a recurring basis as of the dates indicated.
December 31, 2024 (In thousands)
Level 1 Level 2 Level 3 Total
Fair Value
Financial assets:
Fixed maturity securities:
U.S. Treasury and U.S. Government-sponsored enterprises $ 5,909 3,304 - 9,213
States and political subdivisions - 268,302 - 268,302
Corporate 42 794,947 - 794,989
Commercial mortgage-backed - 311 - 311
Residential mortgage-backed - 93,642 - 93,642
Asset-backed - 54,504 - 54,504
Total fixed maturity securities
5,951 1,215,010 - 1,220,961
Equity securities:
Bond mutual funds 739 - - 739
Common stock 810 - - 810
Non-redeemable preferred stock 7 - - 7
Non-redeemable preferred stock fund 3,891 - - 3,891
Total equity securities 5,447 - - 5,447
Other long-term investments (1)
- - - 93,337
Total financial assets $ 11,398 1,215,010 - 1,319,745
(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
December 31, 2024 | 10-K 79
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 2023 (In thousands)
Level 1 Level 2 Level 3 Total
Fair Value
Financial assets:
Fixed maturity securities:
U.S. Treasury and U.S. Government-sponsored enterprises $ 6,062 3,653 - 9,715
States and political subdivisions - 287,231 - 287,231
Corporate 43 787,564 - 787,607
Commercial mortgage-backed - 171 - 171
Residential mortgage-backed - 97,123 - 97,123
Asset-backed - 57,134 - 57,134
Total fixed maturity securities
6,105 1,232,876 - 1,238,981
Equity securities:
Bond mutual funds 740 - - 740
Common stock 665 - - 665
Non-redeemable preferred stock 7 - - 7
Non-redeemable preferred stock fund 3,870 - - 3,870
Total equity securities 5,282 - - 5,282
Other long-term investments (1)
- - - 82,460
Total financial assets $ 11,387 1,232,876 - 1,326,723
(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
FINANCIAL INSTRUMENTS VALUATION
FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE
Fixed maturity securities, available-for-sale. At December 31, 2024, fixed maturity securities, valued using a third-party pricing source, totaled $1.2 billion for Level 2 assets and comprised 92.1% of total reported fair value of our financial assets. The Level 1 and Level 2 valuations are reviewed and updated quarterly through testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades. In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness. There were no Level 3 assets as of December 31, 2024 and 2023. For the year ended December 31, 2024, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received.
Equity securities. Our equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices.
Limited partnerships. The Company considers the net asset value ("NAV") to represent the value of the investment fund and is measured by the total value of assets minus the total value of liabilities. The following table includes information related to our investments in limited partnerships that calculate NAV per share. For these investments, which are measured at fair value on a recurring basis, we use the NAV per share to measure fair value. The Company recognized net investment related losses of $1.0 million on limited partnerships held for the year ended
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 2024 and gains of $0.9 million for the year ended December 31, 2023. These investments are included in other long-term investments on the consolidated balance sheets.
December 31, 2024 December 31, 2023
(In thousands, except years)
Fair Value Using NAV Per Share Unfunded Commit-
ments Range
(In years)
Fair Value Using NAV Per Share Unfunded Commit-
ments Range
(In years)
Description
Limited partnerships:
Middle market Investments in privately-originated, performing senior secured debt primarily in North America-based companies $ 35,369 1,660 3 $ 34,858 3,452 4
Global equity fund Investments in common stocks of U.S., international developed and emerging markets with a focus on long-term capital growth 11,568 - 0 10,345 - 0
Late-stage growth Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale 27,825 8,134 3 to 5
20,524 14,271 4 to 6
Infrastructure Investments in environmental infrastructure and related technology, focusing on renewable power generation and distribution 18,575 5,637 9 16,733 9,576 10
Total limited partnerships $ 93,337 15,431 $ 82,460 27,299
The majority of our limited partnership investments are not redeemable because distributions from the funds will be received when the underlying investments of the funds are liquidated. The life spans indicated above may be shortened or extended at the fund manager's discretion, typically in one or two-year increments. The global equity fund is redeemable monthly.
FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE
Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments. The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions.
The carrying amount and fair value for the financial assets and liabilities on the consolidated financial statements not otherwise disclosed for the periods indicated were as follows:
December 31, 2024 December 31, 2023
(In thousands) Carrying
Value Fair
Value Carrying
Value Fair
Value
Financial assets:
Policy loans $ 71,216 71,216 75,359 75,359
Residential mortgage loans 33 34 42 42
Cash and cash equivalents 29,271 29,271 26,997 26,997
Financial liabilities:
Annuity - investment contracts 68,888 63,629 67,690 63,283
Policy loans. Policy loans had a weighted average annual interest rate of 7.7% at both December 31, 2024 and 2023 and no specified maturity dates. Policy loans are an integral part of the life insurance policies we have in force, cannot be valued separately and are not marketable. Therefore, the fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets and are considered Level 3 assets in the fair value hierarchy.
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Residential mortgage loan. The mortgage loan is secured principally by a residential property. The interest rate for this loan was 7.0% at December 31, 2024 and 2023. At December 31, 2024, the remaining loan matures in four years. Management estimated the fair value using an annual interest rate of 6.25% at both December 31, 2024 and 2023. Our mortgage loan is considered a Level 3 asset in the fair value hierarchy and is included in other long-term investments on the consolidated balance sheets.
Cash and cash equivalents. The fair value of cash and cash equivalents approximates carrying value and these assets are characterized as Level 1 assets in the fair value hierarchy.
Annuity liabilities. The fair value of the Company's liabilities under annuity contracts, which are considered Level 3 liabilities, was estimated at December 31, 2024 and 2023 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 3.96% to 4.96% and 3.80% to 4.50%, respectively. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.
Other long-term investments. Financial instruments included in other long-term investments are classified in various levels of the fair value hierarchy. The following table summarizes the carrying amounts of these investments.
As of December 31,
(In thousands)
2024 2023
Other long-term investments:
Limited partnerships $ 93,337 82,460
FHLB common stock 212 202
Mortgage loans 33 42
All other investments 22 21
Total other long-term investments $ 93,604 82,725
We carried no limited partnership investments at cost at either December 31, 2024 or December 31, 2023.
We are a member of the FHLB of Dallas and such membership requires members to own stock in the FHLB. Our FHLB stock is carried at amortized cost, which approximates fair value.
(4) DEFERRED POLICY ACQUISITION COSTS AND COST OF INSURANCE ACQUIRED
The following tables roll forward the DAC and COIA balances for the years ended December 31, 2024 and 2023 by reporting cohort. Our reporting cohorts are Permanent, which summarizes insurance policies with premiums payable over the lifetime of the policy, and Permanent Limited Pay, which summarizes insurance policies with premiums payable for a limited time after which the policy is fully paid up. Both reporting cohorts include whole life and endowment policies.
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DAC
Year Ended December 31, 2024
(In thousands)
Permanent Permanent Limited Pay Other Business Total
Life Insurance:
Balance, beginning of year $ 105,552 14,075 1,213 120,840
Capitalizations 31,740 3,314 350 35,404
Amortization expense (12,567) (1,001) (1,016) (14,584)
Balance, end of year
124,725 16,388 547 141,660
Home Service Insurance:
Balance, beginning of year 43,280 10,564 1,084 54,928
Capitalizations 4,643 1,017 238 5,898
Amortization expense (2,267) (430) (154) (2,851)
Balance, end of year
45,656 11,151 1,168 57,975
Consolidated:
Balance, beginning of year 148,832 24,639 2,297 175,768
Capitalizations 36,383 4,331 588 41,302
Amortization expense (14,834) (1,431) (1,170) (17,435)
Balance, end of year
$ 170,381 27,539 1,715 199,635
Year Ended December 31, 2023
(In thousands)
Permanent Permanent Limited Pay Other Business Total
Life Insurance:
Balance, beginning of year $ 100,926 11,542 1,016 113,484
Capitalizations 16,451 3,332 468 20,251
Amortization expense (11,825) (799) (271) (12,895)
Balance, end of year
105,552 14,075 1,213 120,840
Home Service Insurance:
Balance, beginning of year 38,793 9,729 921 49,443
Capitalizations 6,570 1,232 248 8,050
Amortization expense (2,083) (397) (85) (2,565)
Balance, end of year
43,280 10,564 1,084 54,928
Consolidated:
Balance, beginning of year 139,719 21,271 1,937 162,927
Capitalizations 23,021 4,564 716 28,301
Amortization expense (13,908) (1,196) (356) (15,460)
Balance, end of year
$ 148,832 24,639 2,297 175,768
DAC capitalization increased for the year ended December 31, 2024, compared to the same prior year period mainly from increased commissions from higher first year sales in our Life Insurance segment.
December 31, 2024 | 10-K 83
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
COIA
Year Ended December 31, 2024
(In thousands)
Permanent Permanent Limited Pay Other Business Total
Life Insurance:
Balance, beginning of year $ 249 695 406 1,350
Amortization expense 350 (47) (406) (103)
Balance, end of year
599 648 - 1,247
Home Service Insurance:
Balance, beginning of year 7,194 168 1,331 8,693
Amortization expense (369) (7) (118) (494)
Balance, end of year
6,825 161 1,213 8,199
Consolidated:
Balance, beginning of year 7,443 863 1,737 10,043
Amortization expense (19) (54) (524) (597)
Balance, end of year
$ 7,424 809 1,213 9,446
Year Ended December 31, 2023
(In thousands)
Permanent Permanent Limited Pay Other Business Total
Life Insurance:
Balance, beginning of year $ 267 750 444 1,461
Amortization expense (18) (55) (38) (111)
Balance, end of year
249 695 406 1,350
Home Service Insurance:
Balance, beginning of year 7,583 176 1,427 9,186
Amortization expense (389) (8) (96) (493)
Balance, end of year
7,194 168 1,331 8,693
Consolidated:
Balance, beginning of year 7,850 926 1,871 10,647
Amortization expense (407) (63) (134) (604)
Balance, end of year
$ 7,443 863 1,737 10,043
December 31, 2024 | 10-K 84
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Estimated amortization of COIA in each of the next five years and thereafter is as follows. Actual future amortization will differ from these estimates due to variances from estimated future withdrawal assumptions.
(In thousands) Amount
Cost of insurance acquired:
Year:
2025 $ 635
2026 582
2027 534
2028 491
2029 453
Thereafter 6,751
Total cost of insurance acquired $ 9,446
(5) POLICYHOLDERS’ LIABILITIES
LIABILITY FOR FUTURE POLICY BENEFITS
The following tables summarize balances of and changes in the liability for future policy benefits for our reporting cohorts: Permanent, which summarizes insurance policies with premiums payable over the lifetime of the policy,
December 31, 2024 | 10-K 85
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
and Permanent Limited Pay, which summarizes insurance policies with premiums payable for a limited time after which the policy is fully paid up. Both reporting cohorts include whole life and endowment policies.
December 31, 2024
(In thousands)
Life Insurance
Home Service Insurance
Permanent Permanent Limited Pay Total Permanent Permanent Limited Pay Total
Present Value of Expected Net Premiums:
Balance, beginning of year $ 244,917 13,260 258,177 98,831 14,926 113,757
Beginning balance at original discount rate 252,426 13,533 265,959 102,045 15,512 117,557
Effect of changes in cash flow assumptions 17,731 274 18,005 (462) 22 (440)
Effects of actual variances from expected experience (17,588) 1,646 (15,942) (7,931) (5,058) (12,989)
Adjusted beginning of year balance 252,569 15,453 268,022 93,652 10,476 104,128
Issuances 101,962 3,612 105,574 14,783 2,306 17,089
Interest accrual 11,576 527 12,103 4,246 520 4,766
Net premiums collected (50,482) (4,455) (54,937) (12,113) 1,346 (10,767)
Derecognition and other (4,706) 43 (4,663) 458 84 542
Ending balance at original discount rate 310,919 15,180 326,099 101,026 14,732 115,758
Effect of changes in discount rates (11,001) (218) (11,219) (6,568) (854) (7,422)
Balance, end of year
$ 299,918 14,962 314,880 94,458 13,878 108,336
Present Value of Expected Future Policy Benefits:
Balance, beginning of year $ 973,350 195,122 1,168,472 211,946 122,784 334,730
Beginning balance at original discount rate 995,962 202,755 1,198,717 217,524 123,941 341,465
Effect of changes in cash flow assumptions 18,320 735 19,055 (502) (1,078) (1,580)
Effects of actual variances from expected experience (13,669) 4,771 (8,898) (8,049) (2,408) (10,457)
Adjusted beginning of year balance 1,000,613 208,261 1,208,874 208,973 120,455 329,428
Issuances 102,793 3,740 106,533 14,776 2,312 17,088
Interest accrual 45,246 8,253 53,499 9,641 5,730 15,371
Benefit payments (95,848) (19,185) (115,033) (15,255) (5,556) (20,811)
Derecognition and other (1,311) 728 (583) 420 75 495
Ending balance at original discount rate 1,051,493 201,797 1,253,290 218,555 123,016 341,571
Effect of changes in discount rates (54,937) (14,731) (69,668) (19,746) (11,377) (31,123)
Balance, end of year
$ 996,556 187,066 1,183,622 198,809 111,639 310,448
Net liability for future policy benefits $ 696,638 172,104 868,742 104,351 97,761 202,112
Plus: Flooring impact 2 - 2 - - -
Less: Reinsurance recoverable 1,639 - 1,639 - - -
Net liability for future policy benefits, after reinsurance recoverable $ 695,001 172,104 867,105 104,351 97,761 202,112
The Company performed its annual review of policy benefit reserves assumptions in the third quarter of 2024 and recorded the effects of changes in its cash flow assumptions, which resulted in a net increase in future policy benefit reserves, primarily from mortality and lapse assumptions that better reflect emerging experience for the new CICA Domestic block of business.
December 31, 2024 | 10-K 86
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
For the year ended December 31, 2024, the Life Insurance segment increased reserves compared to the same period in 2023 due to the unfavorable impact of actual versus expected experience related to mortality and lapses. There was minimal impact to the Home Service Insurance segment resulting from actual to expected experience for the years ended December 31, 2024 and 2023.
December 31, 2023
(In thousands)
Life Insurance Home Service Insurance
Permanent Permanent Limited Pay Total Permanent Permanent Limited Pay Total
Present Value of Expected Net Premiums:
Balance, beginning of year $ 235,228 10,209 245,437 93,508 13,255 106,763
Beginning balance at original discount rate 247,601 10,682 258,283 100,225 14,394 114,619
Effect of changes in cash flow assumptions (210) 38 (172) (343) 85 (258)
Effects of actual variances from expected experience 4,184 1,536 5,720 (8,287) (6,402) (14,689)
Adjusted beginning of year balance 251,575 12,256 263,831 91,595 8,077 99,672
Issuances 34,285 3,607 37,892 17,668 3,951 21,619
Interest accrual 9,291 355 9,646 4,045 468 4,513
Net premiums collected (43,307) (2,955) (46,262) (11,901) 2,832 (9,069)
Derecognition and other 582 270 852 638 184 822
Ending balance at original discount rate 252,426 13,533 265,959 102,045 15,512 117,557
Effect of changes in discount rates (7,509) (273) (7,782) (3,214) (586) (3,800)
Balance, end of year
$ 244,917 13,260 258,177 98,831 14,926 113,757
Present Value of Expected Future Policy Benefits:
Balance, beginning of year $ 947,415 195,612 1,143,027 200,351 116,356 316,707
Beginning balance at original discount rate 996,169 208,051 1,204,220 214,188 121,908 336,096
Effect of changes in cash flow assumptions (389) (702) (1,091) (257) 331 74
Effects of actual variances from expected experience 7,370 5,330 12,700 (8,126) (2,103) (10,229)
Adjusted beginning of year balance 1,003,150 212,679 1,215,829 205,805 120,136 325,941
Issuances 34,922 3,792 38,714 17,664 3,973 21,637
Interest accrual 43,275 8,355 51,630 9,339 5,667 15,006
Benefit payments (85,257) (22,129) (107,386) (15,891) (6,002) (21,893)
Derecognition and other (128) 58 (70) 607 167 774
Ending balance at original discount rate 995,962 202,755 1,198,717 217,524 123,941 341,465
Effect of changes in discount rates (22,612) (7,633) (30,245) (5,578) (1,157) (6,735)
Balance, end of year
$ 973,350 195,122 1,168,472 211,946 122,784 334,730
Net liability for future policy benefits $ 728,433 181,862 910,295 113,115 107,858 220,973
December 31, 2024 | 10-K 87
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table reconciles the net liability for future policy benefits shown above to the liability for future policy benefits reported in the consolidated balance sheets.
December 31, 2024
December 31, 2023
(In thousands) Life
Insurance Home Service
Insurance Consolidated Life
Insurance Home Service
Insurance Consolidated
Life Insurance:
Permanent $ 695,001 104,351 799,352 728,433 113,115 841,548
Permanent limited pay 172,104 97,761 269,865 181,862 107,858 289,720
Deferred profit liability 31,101 29,535 60,636 28,933 26,804 55,737
Other 27,967 14,214 42,181 28,319 13,929 42,248
Total life insurance 926,173 245,861 1,172,034 967,547 261,706 1,229,253
Accident & Health:
Other 635 436 1,071 588 301 889
Total future policy benefit reserves $ 926,808 246,297 1,173,105 968,135 262,007 1,230,142
The following table provides the amount of undiscounted and discounted expected gross premiums and expected future benefit payments for long-term duration contracts.
December 31, 2024 December 31, 2023
(In thousands) Life
Insurance Home Service
Insurance Life
Insurance Home Service
Insurance
Undiscounted:
Permanent:
Expected future gross premiums $ 770,148 444,658 621,935 455,552
Expected future benefit payments 1,623,273 487,177 1,495,206 484,740
Permanent Limited Pay:
Expected future gross premiums 45,502 74,616 47,161 77,266
Expected future benefit payments 324,043 319,376 326,821 320,810
Discounted:
Permanent:
Expected future gross premiums $ 570,976 257,925 481,963 275,629
Expected future benefit payments 996,556 198,809 973,350 211,946
Permanent Limited Pay:
Expected future gross premiums 40,627 48,690 42,138 53,075
Expected future benefit payments 187,066 111,639 195,122 122,784
December 31, 2024 | 10-K 88
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following tables summarize the amount of revenue and interest related to long-term duration contracts recognized in the consolidated statements of operations and comprehensive income (loss) as of the dates indicated.
For the Years Ended
(In thousands)
December 31, 2024 December 31, 2023
Gross Premiums Interest Expense Gross Premiums Interest Expense
Life Insurance Segment:
Life Insurance:
Permanent $ 105,236 33,670 93,917 33,984
Permanent Limited Pay 17,004 8,978 16,396 8,923
Other 12,651 - 12,813 -
Less:
Reinsurance 5,465 - 1,702 -
Total, net of reinsurance 129,426 42,648 121,424 42,907
Accident & Health:
Other 766 - 725 -
Less:
Reinsurance 3 - 4 -
Total, net of reinsurance 763 - 721 -
Total $ 130,189 42,648 122,145 42,907
Home Service Insurance Segment:
Life Insurance:
Permanent $ 32,808 5,395 33,263 5,294
Permanent Limited Pay 7,832 6,537 8,576 6,388
Other 1,522 - 1,371 -
Less:
Reinsurance 27 - 25 -
Total, net of reinsurance 42,135 11,932 43,185 11,682
Accident & Health:
Other 1,022 - 916 -
Total $ 43,157 11,932 44,101 11,682
The following table provides the weighted-average durations of the liability for future policy benefits.
December 31, 2024 December 31, 2023
(In years) Life
Insurance Home Service
Insurance Life
Insurance Home Service
Insurance
Permanent:
Duration at original discount rate 8.4 15.6 8.5 16.4
Duration at current discount rate 8.5 14.8 8.5 16.4
Permanent Limited Pay:
Duration at original discount rate 8.0 14.4 8.2 14.8
Duration at current discount rate 7.6 13.8 8.1 15.3
December 31, 2024 | 10-K 89
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table provides the weighted-average interest rates for the liability for future policy benefits.
December 31, 2024 December 31, 2023
Life
Insurance Home Service
Insurance Life
Insurance Home Service
Insurance
Permanent:
Interest rate at original discount rate 4.87 % 4.96 % 4.89 % 4.97 %
Interest rate at current discount rate 5.25 % 5.63 % 4.79 % 4.96 %
Permanent Limited Pay:
Interest rate at original discount rate 4.28 % 5.03 % 4.29 % 5.04 %
Interest rate at current discount rate 5.27 % 5.62 % 4.77 % 4.95 %
LIABILITY FOR POLICYHOLDERS’ ACCOUNT BALANCES
The following table presents the policyholders' account balances by range of guaranteed minimum crediting rates and the related range of the difference, in basis points, between rates being credited and the respective guaranteed minimums.
At Guaranteed Minimum 1 Basis Point-50 Basis Points Above 51 Basis Points-150 Basis Points Above Greater Than 150 Basis Points Above Total
December 31, 2024
(In thousands)
Range of Guaranteed Minimum Crediting Rates:
0.00% - 1.49%
$ 826 - - 34,741 35,567
1.50% - 2.99%
4,761 178 6 32,452 37,397
3.00% - 4.49%
102,478 369 18,977 - 121,824
Greater or equal to 4.50%
31,371 - - - 31,371
Total $ 139,436 547 18,983 67,193 226,159
At Guaranteed Minimum 1 Basis Point-50 Basis Points Above 51 Basis Points-150 Basis Points Above Greater Than 150 Basis Points Above Total
December 31, 2023
(In thousands)
Range of Guaranteed Minimum Crediting Rates:
0.00% - 1.49%
$ 784 - 1,146 34,886 36,816
1.50% - 2.99%
33,073 671 49 - 33,793
3.00% - 4.49%
105,684 9 - - 105,693
Greater or equal to 4.50%
31,400 - - - 31,400
Total $ 170,941 680 1,195 34,886 207,702
December 31, 2024 | 10-K 90
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following tables summarize balances of and changes in policyholders' account balances.
December 31, 2024
(In thousands, except for %)
Supplemental Contracts Without Life Contingencies Fixed Annuity Dividend Accumulations
Premiums Paid in Advance
Balance, beginning of year $ 44,569 87,134 44,960 31,039
Issuances 24,241 3,263 779 5,820
Premiums received 438 4,201 5,703 778
Interest credited 2,031 2,790 1,827 800
Other 5 - - -
Less:
Surrenders and withdrawals - 9,308 5,501 8,540
Benefit payments 10,870 - - -
Balance, end of year
$ 60,414 88,080 47,768 29,897
Weighted-average crediting rates 4.01 % 3.73 % 3.58 % 3.02 %
Cash surrender value $ 60,414 88,080 47,768 29,897
December 31, 2023
(In thousands, except for %)
Supplemental Contracts Without Life Contingencies Fixed Annuity Dividend Accumulations
Premiums Paid in Advance
Balance, beginning of year $ 32,995 86,807 41,663 34,603
Issuances 22,387 2,741 660 3,693
Premiums received 123 4,387 5,860 793
Interest credited 1,483 2,653 1,364 1,627
Other 1 - - -
Less:
Surrenders and withdrawals - 9,454 4,587 9,677
Benefit payments 12,420 - - -
Balance, end of year
$ 44,569 87,134 44,960 31,039
Weighted-average crediting rates 4.00 % 3.56 % 3.04 % 2.95 %
Cash surrender value $ 44,569 87,134 44,960 31,039
December 31, 2024 | 10-K 91
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table reconciles policyholders' account balances shown above to the policyholders' account balance liability in the consolidated balance sheets.
As of December 31,
(In thousands)
2024 2023
Annuities:
Supplemental contracts without life contingencies $ 60,414 44,569
Fixed annuity 88,080 87,134
Unearned revenue reserve 1,483 1,513
Total annuities $ 149,977 133,216
Premiums paid in advance:
Premiums paid in advance $ 29,897 31,039
Other 1,285 1,407
Total premiums paid in advance $ 31,182 32,446
(6) POLICY CLAIM LIABILITY
The following table presents information on changes in the liability for policy and contract claims.
Years ended December 31,
(In thousands)
2024 2023
Policy claims payable:
Balance at January 1 $ 6,637 9,884
Less: reinsurance recoverable 1,298 2,070
Net balance at January 1 5,339 7,814
Add claims incurred, related to:
Current year 26,781 25,630
Prior years(1)
(552) (522)
26,229 25,108
Deduct claims paid, related to:
Current year 19,189 20,786
Prior years 4,480 6,797
23,669 27,583
Net balance December 31 7,899 5,339
Plus: reinsurance recoverable 923 1,298
Balance at December 31 $ 8,822 6,637
(1) This line is primarily impacted by the level of claim resolutions in the period compared to that which is expected by the reserve assumption. A positive number implies an unfavorable result where claim resolutions were less favorable than assumed while a negative number implies a favorable result compared to assumptions. Our claim assumptions will vary from actual experience in any one period, either favorably or unfavorably.
(7) REINSURANCE
In the normal course of business, the Company reinsures portions of certain policies that we underwrite to mitigate exposure to potential losses and/or to provide additional capacity for growth. In our international business, we generally retain $100,000 on any one individual life insurance policy and reinsure the death benefit amount above $100,000. We also reinsure 100% of our accidental death benefit rider coverage. In the second quarter of 2024, CICA Domestic entered into a coinsurance agreement with RGA Reinsurance Company ("RGA"). Under this agreement, CICA Domestic initially elected for RGA to reinsure 50% of its newly written final expense business. The
December 31, 2024 | 10-K 92
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Company remains contingently liable in the event that any of the reinsurers are unable to meet their obligations under any reinsurance agreement.
Prior to 2024, the Company maintained catastrophic reinsurance for its Louisiana property and casualty business operated through Security Plan Fire Insurance Company. This reinsurance had a net retention on any one loss of $30,000, which was the maximum policy limit on any single risk. The Company ceased this business in June 2023 and thus did not renew this reinsurance.
Our amounts recoverable from reinsurers represent receivables from and reserves ceded to reinsurers. We obtain reinsurance from multiple reinsurers and monitor our reinsurance concentration as well as the financial strength ratings of our reinsurers. Their ratings by A.M. Best Company range from A- (Excellent) to A+ (Superior).
A summary of insurance in force, along with assumed and ceded life reinsurance activity, is summarized below as of the periods indicated.
December 31,
(In thousands)
2024 2023
Insurance in force:
Direct life insurance in force $ 5,227,506 4,922,254
Aggregate assumed life insurance in force 3,427 3,772
Aggregate ceded life insurance in force (821,215) (619,597)
Net life insurance in force $ 4,409,718 4,306,429
The Company's reinsurance recoverable on ceded reinsurance was $6.9 million and $4.0 million in 2024 and 2023, respectively. Premiums, claims and surrenders assumed and ceded and expenses ceded for all lines of business are summarized for the periods indicated below.
Years ended December 31,
(In thousands)
2024 2023
Premiums from short duration contracts:
Direct $ 1,837 4,425
Ceded (16) (1,792)
Net premiums earned 1,821 2,633
Premiums from long duration contracts:
Direct 176,999 166,132
Assumed 67 68
Ceded (5,559) (1,794)
Net premiums earned 171,507 164,406
Total premiums earned $ 173,328 167,039
Claims and surrenders assumed $ 122 113
Claims and surrenders ceded
$ (2,341) (936)
Commissions assumed and (ceded)
$ (5,539) 35
Other general expenses ceded $ (960) -
(8) COMMITMENTS AND CONTINGENCIES
LITIGATION AND REGULATORY ACTIONS
From time to time, we are subject to legal and regulatory actions relating to our business. We may incur defense costs, including attorneys' fees, and other direct litigation costs associated with defending claims. If we suffer an adverse judgment as a result of litigation claims, it could have a material adverse effect on our business, results of
December 31, 2024 | 10-K 93
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
operations and financial condition. The Company's policy is to accrue for defense costs as those services are provided.
Trade Secret Lawsuit
In the first quarter of 2024, a jury trial was held in the “trade secret lawsuit”. The trade secret lawsuit was filed in 2018 by Citizens, CICA Life Ltd. (Bermuda) and CICA Life Insurance Company of America (collectively, the “Citizens Companies,” “we,” "us" or "our") against certain former employees and independent consultants who we alleged unlawfully took Citizens’ confidential information in order to unfairly compete with us. Our claims against these parties included various unfair competition, tortious interference, breach of contract and other related claims.
As previously disclosed, the jury found that Citizens should pay Alexis Delgado and Carlos Nalsen Landa, former independent consultants, approximately $1.3 million for “money had and received”, an equitable theory that claimed that the Citizens Companies would be unjustly enriched if they didn’t pay past and future commissions to Delgado and Landa. Additionally, the trial court awarded defendants Michael P. Buchweitz and Randall Riley approximately $3.5 million of their legal fees incurred during the trade secret lawsuit. On August 16, 2024, the judge signed a Final Judgment reflecting the jury decision and the court award of the legal fees. We do not believe the jury properly found that Delgado or Landa were entitled to any prior or future commissions as there was no evidence that we actually held any amount of commissions that they claim they should have received. We also do not believe that Riley or Buchweitz are entitled to legal fees because they were found to have breached the contracts whose fee shifting provisions they sought to invoke. Both of these judgments have been accrued pending the result of our appeal.
On September 17, 2024, we filed an appeal bond with the trial court in order to stay any execution of the judgment against us.
We have appealed the judgment against us and the appeal is currently pending in the Court of Appeals, Third District of Texas.
CREDIT FACILITY
On May 3, 2024, the Company renewed its $20 million senior secured revolving credit facility (the “Credit Facility”) with Regions Bank ("Regions"). The Credit Facility has a three-year term, maturing on May 5, 2027, and allows the Company to borrow up to $20 million for working capital purposes, capital expenditures and other corporate purposes.
Revolving loans may be requested by the Company in aggregate minimum principal amounts of $0.5 million per loan. At the Company's election, the revolving loans may either bear a rate (a fluctuating rate per annum) equal to the greatest of (a) Regions' prime rate, (b) the federal funds rate plus 0.50%, (c) the index rate plus 1.00% or (d) 0.75%. The Company is required to pay Regions a quarterly commitment fee of 0.375% of the unused portion of the Credit Facility, which the Company expenses as it is incurred.
Obligations under the Credit Facility are secured by substantially all of the assets of the Company other than the equity interests its subsidiaries, real estate owned by the Company, and other limited exceptions. The Credit Facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to restrictions on indebtedness, liens, investments, asset dispositions and restricted payments. As of December 31, 2024, the Company had not borrowed any funds against the Credit Facility and was not in violation of any covenants.
CONTRACTUAL OBLIGATIONS
The Company leases home office space in Austin, Texas for Citizens and in Puerto Rico for NES as well as several district office locations related to our Home Service Insurance segment across Louisiana, Mississippi and Arkansas, which are classified as operating leases. Certain operating leases include renewal options that extend the lease term. The exercise of lease renewal options is at our sole discretion when it is reasonably certain that we will exercise such option. Leases with an initial term of 12 months or less are immaterial to the consolidated financial statements and are recognized as lease expense on a straight-line basis over the lease term and not recorded on the consolidated balance sheets.
Our operating lease liabilities had a weighted-average lease term of 5.8 years remaining as of December 31, 2024.
December 31, 2024 | 10-K 94
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Maturities of our remaining operating lease liabilities as of December 31, 2024 are as follows.
(In thousands) Operating Lease Payments
Maturity of operating lease liabilities:
2025 $ 1,433
2026 1,385
2027 1,403
2028 1,438
2029 1,474
After 2029 1,253
Total operating lease liabilities
8,386
Interest expense (597)
Present value of operating lease liabilities $ 7,789
We record the lease right-of-use asset in Property and Equipment, Net and the lease liability in Other Liabilities using a weighted average discount rate of 2.71%. Cash payments related to the operating lease liabilities were $1.5 million and $1.4 million for the years ended December 31, 2024 and 2023, respectively, and were reported in operating cash flows.
The Company does not engage in lease agreements among related parties.
As of December 31, 2024, CICA International is committed to fund investments up to $15.4 million related to limited partnership investments.
(9) STOCKHOLDERS' EQUITY AND RESTRICTIONS
STOCK
Our Restated and Amended Articles of Incorporation authorize the issuance of 127,000,000 shares, of which 100,000,000 shares shall be Class A common stock, 2,000,000 shares shall be Class B common stock, and 25,000,000 shall be preferred stock. Both authorized classes of common stock are equal in all respects, except (a) each share of Class A common stock is entitled to receive twice the cash dividends paid on a per share basis to the Class B common stock, if any; and (b) the holders of the Class B common stock have the exclusive right to elect a simple majority of the Board of Directors of Citizens. Citizens currently has no outstanding preferred stock or Class B common stock other than that held in treasury.
A summary of the change in the number of shares of Class A common stock and treasury stock issued is as follows:
(In thousands) Common Stock Treasury
Class A Stock
Balance at December 31, 2022
53,758 4,937
Stock issued for compensation 125 -
Acquisition of Class A shares - 393
Balance at December 31, 2023
53,883 5,330
Stock issued for compensation 352 -
Balance at December 31, 2024
54,235 5,330
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CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share.
Years ended December 31,
(In thousands, except per share amounts)
2024 2023
Basic and diluted earnings per share:
Numerator:
Net income
$ 14,912 24,437
Net income allocated to Class A common stock
$ 14,912 24,437
Denominator:
Weighted average shares of Class A outstanding - basic
49,738 49,696
Weighted average shares of Class A outstanding - diluted
50,748 50,681
Basic earnings per share of Class A common stock
$ 0.30 0.49
Diluted earnings per share of Class A common stock
$ 0.29 0.48
STATUTORY CAPITAL AND SURPLUS
The table below shows the combined total of all of our domestic insurance subsidiaries' statutory capital and surplus and statutory net income (loss) for life insurance operations and property insurance operations, although these amounts are not all available as dividends to Citizens since CICA Domestic is the only subsidiary directly owned by Citizens. All other domestic subsidiaries are owned by CICA Domestic. SPFIC, our property insurance subsidiary, was dissolved during 2024.
As of December 31,
(In thousands)
2024 2023
Combined statutory capital and surplus:
Life insurance operations $ 28,814 29,416
Property insurance operations - 5,692
Total combined statutory capital and surplus $ 28,814 35,108
Years ended December 31,
(In thousands)
2024 2023
Combined statutory net income (loss):
Life insurance operations $ (9,996) (3,606)
Property insurance operations (294) (1,219)
Total combined statutory net income (loss) $ (10,290) (4,825)
Generally, the net assets of the domestic insurance subsidiaries available for transfer to their immediate parent are limited to the lesser of the subsidiary's net gain from operations during the preceding year or 10% of the subsidiary's net statutory surplus as of the end of the preceding year as determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities. Under these practices, total surplus at December 31, 2024 was $25.7 million and net loss from operations was $10.2 million for CICA Domestic for the year ended December 31, 2024. Based upon these amounts, no dividend could be paid to the Company without prior regulatory approval in 2025. Payments of dividends in excess of such amounts would generally require approval by regulatory authorities.
Our domestic insurance subsidiaries have calculated their risk-based capital ("RBC") in accordance with the National Association of Insurance Commissioners' ("NAIC") Model Rule and the RBC rules as adopted by their
December 31, 2024 | 10-K 96
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
respective states of domicile. All domestic insurance subsidiaries exceeded the minimum capital requirements at December 31, 2024. On March 27, 2024, Citizens and the Colorado Division of Insurance entered into a capital maintenance agreement that specifies that Citizens will infuse capital as needed to ensure that CICA Domestic's RBC remains above 350%. As CICA Domestic's RBC exceeded 350% at December 31, 2024, no capital contribution was necessary.
CICA International is a Puerto Rico domiciled company. The Insurance Code of Puerto Rico does not specifically set forth minimum capital and surplus standards, but rather requires that an insurer submit a business plan for approval to the Office of the Commissioner of Insurance ("OIC") that includes proposed minimum capital and surplus. CICA International is required to maintain a minimum of $750,000 in capital and maintain a premium to surplus ratio of 7 to 1. CICA International began issuing new business as of January 1, 2023 and received the transfer of all of CICA Bermuda's in force insurance business as of August 31, 2023. CICA International's capital exceeds both of the required minimum capital and related ratio.
As of December 31,
(In thousands)
2024 2023
CICA International capital and surplus
$ 91,513 66,619
Years ended December 31,
(In thousands)
2024 2023
CICA International net income
$ 18,871 27,484
As stated above, CICA International exceeded both of the capital and surplus metrics established by the OIC. CICA International could pay up to $1.0 million in dividends during 2025 without regulatory approval.
(10) SEGMENT AND OTHER OPERATING INFORMATION
The Company's segments are defined by management's reporting structure and operating activities. The chief operating decision maker ("CODM"), our President and Chief Executive Officer, reviews and analyzes income statement information by segment to make decisions, assess financial performance and allocate resources across the Company in order to meet the overall strategic objectives of the Company. The Company has two reportable segments: Life Insurance and Home Service Insurance.
Our Life Insurance segment issues endowment contracts, which are principally accumulation contracts that incorporate an element of life insurance protection, and whole life insurance to non-U.S. residents through CICA International. These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional coverage and annuity benefits to enhance accumulations. CICA Domestic issues whole life, final expense and life products with living benefits throughout the U.S.
Our Home Service Insurance segment operates through our subsidiaries SPLIC and MGLIC, and focuses on the life insurance needs of the lower-income markets, primarily in Louisiana, Mississippi and Arkansas. SPLIC also issues critical illness policies. Our policies are sold and serviced through funeral homes and independent agents who sell policies, collect premiums and service policyholders. SPFIC sold property insurance policies in Louisiana and Arkansas until operations were ceased effective June 30, 2023. SPFIC was dissolved during 2024.
The Life Insurance and Home Service Insurance portions of the Company constitute separate businesses. In addition to the Life Insurance and Home Service Insurance business, the Company also operates other non-insurance portions of the Company ("Other Non-Insurance Enterprises"), which primarily include the Company’s IT and corporate-support functions.
The accounting policies of the reportable segments and Other Non-Insurance Enterprises are presented in accordance with U.S. GAAP and are the same as those described in the summary of significant accounting policies. The CODM evaluates profit and loss performance based on U.S. GAAP net income (loss) before federal income taxes for its two reportable segments. The Company's Other Non-Insurance Enterprises represents the only reportable difference between segments and consolidated operations.
December 31, 2024 | 10-K 97
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Year ended December 31, 2024
(In thousands)
Life
Insurance Home
Service Insurance Other
Non-Insurance
Enterprises Consolidated
Revenues:
Premiums:
Life insurance $ 129,426 42,135 - 171,561
Accident and health insurance 763 1,022 - 1,785
Property insurance - (18) - (18)
Net investment income (loss) 54,666 14,162 884 69,712
Investment related gains (losses), net (2,185) (424) (17) (2,626)
Other income (loss) 4,483 21 83 4,587
Total revenues 187,153 56,898 950 245,001
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 123,020 23,062 - 146,082
Increase in future policy benefit reserves (10,501) 6,215 - (4,286)
Policyholder liability remeasurement (gain) loss
5,380 (624) - 4,756
Policyholders' dividends 5,332 23 - 5,355
Total insurance benefits paid or provided 123,231 28,676 - 151,907
Commissions 35,795 13,323 - 49,118
Other general expenses 25,898 14,972 11,396 52,266
Capitalization of deferred policy acquisition costs (35,404) (5,898) - (41,302)
Amortization of deferred policy acquisition costs 14,584 2,851 - 17,435
Amortization of cost of insurance acquired 103 494 - 597
Total benefits and expenses 164,207 54,418 11,396 230,021
Income (loss) before federal income tax $ 22,946 2,480 (10,446) 14,980
December 31, 2024 | 10-K 98
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Year ended December 31, 2023
(In thousands)
Life
Insurance Home
Service Insurance Other
Non-Insurance
Enterprises Consolidated
Revenues:
Premiums:
Life insurance $ 121,424 43,185 - 164,609
Accident and health insurance 721 916 - 1,637
Property insurance - 793 - 793
Net investment income (loss) 54,352 13,832 1,070 69,254
Investment related gains (losses), net 301 522 (63) 760
Other income (loss) 3,605 17 5 3,627
Total revenues 180,403 59,265 1,012 240,680
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 113,428 22,565 - 135,993
Increase in future policy benefit reserves (10,931) 5,307 - (5,624)
Policyholder liability remeasurement (gain) loss
4,153 307 - 4,460
Policyholders' dividends 5,512 30 - 5,542
Total insurance benefits paid or provided 112,162 28,209 - 140,371
Commissions 22,896 16,345 - 39,241
Other general expenses 23,969 16,690 6,472 47,131
Capitalization of deferred policy acquisition costs (20,251) (8,050) - (28,301)
Amortization of deferred policy acquisition costs 12,895 2,565 - 15,460
Amortization of cost of insurance acquired 111 493 - 604
Total benefits and expenses 151,782 56,252 6,472 214,506
Income (loss) before federal income tax $ 28,621 3,013 (5,460) 26,174
The Company categorizes premiums in two categories - first year premiums are premiums received within the first 12 months of a policy's issuance and any premiums received thereafter are renewal premiums. A summary of the direct premiums for the Life Insurance segment is detailed below.
Years ended December 31,
(In thousands)
Life Insurance Segment
2024 2023
Premiums:
Direct premiums:
First year $ 27,796 13,479
Renewal 107,861 110,372
Total direct premiums 135,657 123,851
Reinsurance
(5,468) (1,706)
Total premiums $ 130,189 122,145
December 31, 2024 | 10-K 99
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Since the property casualty business was dissolved during 2024, a summary of the Home Service Insurance segment direct life and A&H premium breakout is detailed below.
Years ended December 31,
(In thousands)
Home Service Insurance Segment
2024 2023
Direct life and A&H premiums:
First year $ 5,226 5,810
Renewal 37,958 38,316
Total direct life and A&H premiums
$ 43,184 44,126
The table below summarizes assets by segment.
December 31,
(In thousands)
2024 2023
Assets:
Segments:
Life Insurance $ 1,291,300 1,267,243
Home Service Insurance 358,788 359,773
Total Segments
1,650,088 1,627,016
Other Non-Insurance Enterprises 35,237 41,912
Total assets $ 1,685,325 1,668,928
GEOGRAPHIC INFORMATION
The following table sets forth the Company's annual total of earned premiums by country of policyholder residence for the years indicated.
Years ended December 31,
(In thousands)
2024 2023
Area:
United States $ 58,468 50,594
Colombia 25,727 25,453
Taiwan 16,690 17,760
Venezuela 14,305 15,143
Ecuador 13,159 13,379
Argentina 10,319 9,533
Other foreign countries 39,317 38,943
Reinsurance and change in premium accruals (4,657) (3,766)
Total premiums $ 173,328 167,039
(11) INCOME TAXES
CICA International and CICA Bermuda are considered controlled foreign corporations for federal income tax purposes. As a result, the insurance activity of CICA International and CICA Bermuda are subject to Subpart F of the Internal Revenue Code ("IRC") and are included in Citizens’ taxable income. Due to the 0% enacted tax rate in Bermuda for all periods prior to the transfer of CICA Bermuda's insurance in force business to CICA International, there are no deferred taxes recorded for CICA Bermuda's temporary differences. The Government of Puerto Rico
December 31, 2024 | 10-K 100
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
approved a tax exemption decree for CICA International which freezes the income tax rate at 0% on taxable earnings up to $1.2 million and 4% on any taxable earnings in excess of $1.2 million for a minimum of 15 years.
In connection with the transfer of CICA Bermuda’s business from a zero tax jurisdiction to CICA International’s 4% tax jurisdiction in Puerto Rico, certain opening tax assets and liabilities, mainly related to investments, DAC and reserves, were established and the Company's consolidated deferred federal income tax liability was reduced by $4.4 million. Since the transfer was between companies under common control, the $4.4 million reduction in the deferred federal income tax liability was recorded as a credit to equity, $1.4 million of which increased retained earnings and $3.0 million of which reduced accumulated other comprehensive income (loss), based on the nature of the components during 2023 in accordance with ASC Topic 805.
A summary of the income (loss) before federal income tax expense, by jurisdiction, is as follows:
Years ended December 31,
(In thousands)
2024 2023
Income (loss) before federal income tax:
United States $ (4,317) (214)
Puerto Rico 19,297 11,514
Bermuda - 14,874
Total income before federal income tax
$ 14,980 26,174
Federal income tax expense (benefit) consists of:
Years ended December 31,
(In thousands)
2024 2023
Current income tax expense (benefit) related to:
United States - normal operations
$ 286 1,271
United States - UTP impact
- (971)
Puerto Rico
1,582 577
Bermuda
- -
Total current income tax expense
1,868 877
Deferred income tax expense (benefit) related to:
United States
(908) 968
Puerto Rico
(892) (108)
Bermuda
- -
Total deferred income tax expense (benefit)
(1,800) 860
Total federal income tax expense (benefit)
$ 68 1,737
December 31, 2024 | 10-K 101
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A reconciliation between the U.S. corporate income tax rate and the effective income tax rate is as follows:
Years ended December 31,
(In thousands, except for %)
2024 % 2023 %
Expected federal income tax expense (benefit):
$ 3,146 21.0 % $ 5,497 21.0 %
Foreign tax effects:
Puerto Rico:
Statutory tax rate difference between Puerto Rico
and United States (3,280) (21.9) (5,029) (19.2)
Income tax exclusion
(48) (0.3) (48) (0.2)
Other (35) (0.2) - -
Effect of cross-border tax laws:
Subpart F inclusions
(524) (3.5) 1,595 6.1
PFIC QEF inclusions
800 5.3 570 2.2
Other 2 - - -
Nontaxable or nondeductible items:
Tax-exempt interest and dividends-received deduction (23) (0.1) (35) (0.1)
Compensation limitation under Section 162(m) & 280(g)
(2) - 80 0.3
Other
52 0.3 - -
Changes in unrecognized tax benefits
- - (971) (3.7)
Other (20) (0.1) 78 0.2
Total federal income tax expense (benefit) $ 68 0.5 % $ 1,737 6.6 %
A summary of the total federal income tax payments made and refunds received by jurisdiction is as follows:
Years ended December 31,
(In thousands)
2024 2023
Tax payments (refunds)
United States $ (828) 1,798
Puerto Rico 1,300 1
Bermuda - -
Total tax payments
$ 472 1,799
December 31, 2024 | 10-K 102
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The components of deferred federal income taxes are as follows:
December 31,
(In thousands)
2024 2023
Deferred tax assets:
Future policy benefit reserves $ - 739
Net operating and capital loss carryforwards 1,774 353
Accrued policyholder dividends and expenses 200 218
Deferred intercompany loss 1,721 1,780
Unrealized losses on investments available-for-sale
15,816 12,786
Accrued compensation 745 379
Lease liability 1,628 1,895
Fixed assets
394 249
Other 1,065 270
Total gross deferred tax assets 23,343 18,669
Less:
Valuation allowance 5,073 4,468
Net deferred tax assets 18,270 14,201
Deferred tax liabilities:
DAC, COIA and intangible assets (14,619) (11,556)
Future policy benefit reserves (4,363) -
Investments
(316) (322)
Tax reserves transition liability (747) (1,494)
Right-of-use lease asset (1,628) (1,895)
Other (39) (36)
Total gross deferred tax liabilities (21,712) (15,303)
Net deferred tax liability $ (3,442) (1,102)
A summary of changes in the components of deferred federal and state income taxes is as follows:
December 31,
(In thousands)
2024 2023
Deferred federal and state income taxes:
Balance January 1, $ (1,102) (3,653)
Deferred tax benefit (expense) 1,800 (860)
Investments available-for-sale 3,031 2,424
Change in valuation allowance (605) (230)
Effects of unrealized gains (losses) on reserves
(6,566) 1,217
Balance December 31, $ (3,442) (1,102)
The Company and our subsidiaries have $6.3 million in net operating loss carryforwards in the U.S. at December 31, 2024. The Company and our subsidiaries have capital loss carryforwards of $2.0 million in the U.S. and $0.5 million in Puerto Rico at December 31, 2024, which begin expiring in 2026 and 2031, respectively.
December 31, 2024 | 10-K 103
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31, 2024 and 2023, we determined it was more likely than not that a portion of our capital deferred tax assets would not be realized in their entirety. Thus, the Company holds valuation allowances of $5.1 million and $4.5 million in other comprehensive income (loss) at December 31, 2024 and 2023, respectively.
The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.
A reconciliation of unrecognized tax benefits is as follows:
Years ended December 31,
(In thousands)
2024 2023
Balance January 1,
$ - 971
Reductions for tax positions of prior years - (971)
Balance December 31, $ - -
The Company accrued an uncertain tax position of $1.0 million at December 31, 2022 which would have affected the effective tax rate if recognized. However, the Company released all of the remaining uncertain tax positions, including interest, during the fourth quarter of 2023 following the expiration of the statute of limitations on the tax year ended December 31, 2019. The Company has no uncertain tax positions as of December 31, 2024.
The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. In the consolidated statements of operations and comprehensive income (loss), we recorded no interest income for the year ended December 31, 2024 and $0.2 million for the year ended December 31, 2023.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in response to the COVID-19 pandemic. The CARES Act, among other things, permitted net operating losses incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. During the year ended December 31, 2022, the Company was able to claim a net refund for taxes paid in preceding years as a result of the CARES Act. As of December 31, 2024, the Company has an accrued tax refund remaining of $0.7 million.
The American Rescue Plan Act of 2021 was enacted on March 11, 2021 and the Inflation Reduction Act was enacted on August 16, 2022. These Acts did not have a material impact on the Company's financial statements.
The Company's federal income tax return is filed on a consolidated basis with the following entities:
Citizens, Inc.
CICA Life Insurance Company of America
Magnolia Guaranty Life Insurance Company
Security Plan Life Insurance Company
Security Plan Fire Insurance Company
Computing Technology, Inc.
The method of tax allocation among companies is subject to a written tax sharing agreement, approved by the Board of Directors, whereby allocation is made primarily on a separate return basis pursuant to the wait-and-see method. Under this method, consolidated group members are not given current credit or refunds for net operating losses until taxable income on a separate return basis is generated. Intercompany tax balances are settled at least annually.
The Company and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various U.S. states. Our subsidiaries are subject to examination by U.S. tax authorities for tax years ending after December 31, 2021.
The Company's Puerto Rico subsidiaries are subject to examination by Puerto Rico tax authorities for tax years ending after December 31, 2022.
December 31, 2024 | 10-K 104
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(12) OTHER COMPREHENSIVE INCOME (LOSS)
The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% for domestic entities and 4% for Puerto Rican entities as indicated below.
(In thousands) Amount Tax Effect Total
Year ended December 31, 2024:
Unrealized gains (losses):
Unrealized holding gains (losses) arising during the period $ (30,982) 2,572 (28,410)
Reclassification adjustment for (gains) losses included in net income (loss)
699 (147) 552
Unrealized holding gains (losses), net
(30,283) 2,425 (27,858)
Change in current discount rate for liability for future policy benefits
56,613 (6,565) 50,048
Other comprehensive income (loss) $ 26,330 (4,140) 22,190
Year ended December 31, 2023:
Unrealized gains (losses):
Unrealized holding gains (losses) arising during the period $ 50,894 971 51,865
Reclassification adjustment for (gains) losses included in net income (loss)
756 (159) 597
Unrealized holding gains (losses), net
51,650 812 52,462
Change in current discount rate for liability for future policy benefits
(34,790) 1,217 (33,573)
Other comprehensive income (loss) $ 16,860 2,029 18,889
(13) STOCK COMPENSATION
Citizens grants stock-based compensation in the form of restricted stock units ("RSUs") and beginning in 2024, performance share units ("PSUs"). All stock awards are granted pursuant to the Citizens, Inc. Omnibus Incentive Plan (the "Plan"), which was approved by our shareholders in 2017. There were 3,000,000 shares authorized to be granted under the Plan. Awards may be granted under the Plan until June 05, 2027.
Restricted Stock Units. RSUs consist of time-vested grants and give the grantee the right to receive one share of our Class A common stock in the future for each RSU granted, subject to certain restrictions and a risk of forfeiture. For non-employee directors, RSUs are granted annually on the date of the annual shareholders meeting and vest one year from the date of grant, subject to continued service on the Board. Employee RSU grants vest over three years, subject to continued employment (except in the case of retirement, death or disability).
December 31, 2024 | 10-K 105
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table provides a rollforward of RSU activity for the two-year period ended December 31, 2024.
Restricted Stock Units Units Weighted Average Grant Date Fair Value
(In thousands)
Outstanding at December 31, 2022 266 $ 4.65
Granted 464 3.03
Less:
Vested 148 4.56
Forfeited 8 4.47
Outstanding at December 31, 2023 574 3.37
Granted 892 2.29
Less:
Vested 433 2.73
Forfeited 17 2.84
Outstanding at December 31, 2024 1,016 $ 2.70
In 2024, we recognized $1.5 million of expense for RSUs granted on or prior to December 31, 2024, while $1.8 million was unrecognized and is expected to be amortized up to two years. We also recognized compensation expenses of $1.4 million and $0.6 million in 2024 and 2023, respectively, related to RSU awards that vested during these periods. The aggregate intrinsic value of RSUs vested during the years ended December 31, 2024 and 2023 was $1.2 million and $0.4 million, respectively.
Performance Share Units. In 2024, the Board of Directors granted PSUs to a limited number of senior executives. PSUs have a three-year performance period and and give the grantee the right to receive one share of our Class A common stock in the future for each PSU granted, subject to subject to certain restrictions and a risk of forfeiture. While the PSU grant specifies a stated target number of shares, the grantees can earn up to 200% of the target PSUs awarded based on the achievement of the Board approved metric over the performance period. PSUs are not settled in shares until the Board certifies that the approved performance metrics have been met. Employees must continue to be employed during the performance period in order to receive shares, except in the case of death or disability, change in control, retirement (settled pro-rata) or certain involuntary terminations (settled pro-rata).
The following table provides a rollforward of PSU activity for the period beginning on the first date of grant and ending on December 31, 2024.
Performance Stock Units Units
Weighted Average Grant Date Fair Value
(In thousands)
Outstanding at March 28, 2024
- $ -
Granted 333 2.14
Less:
Forfeited 83 2.14
Outstanding at December 31, 2024 250 (1)
$ 2.14
(1) The number of PSUs represents the base number of PSUs that may vest. The actual number of PSUs that vest will be between 0 and 500,000, depending on the Company's achievement of certain performance goals.
December 31, 2024 | 10-K 106
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In 2024, for the PSU grants, we recognized $0.1 million of expense, while $0.2 million was unrecognized and is expected to be amortized over the next two years. As of December 31, 2024, management estimates that the probability of achieving the performance targets was 50%.
(14) BENEFIT PLANS
The Company sponsors a defined contribution retirement plan. The plan was initially established as the Citizens, Inc. Profit Sharing Plan and was restated as the Citizens, Inc. 401(k) Retirement and Profit Sharing Plan effective March 1, 2016. There have been no profit sharing contributions since 2014.
The 401(k) plan automatically enrolls employees who have completed three months of service. Voluntary contributions are made by employees and the Company provides a matching contribution based upon the employee's level of contribution. The Company's expense was $0.8 million in both 2024 and 2023.
Until December 31, 2024, the Company was primarily self-insured for employee health benefits. The Company recorded its self-insurance liability based on an estimate of claims incurred but not yet reported. Through December 31, 2024, we also had stop-loss coverage for amounts in excess of $80,000 per individual per year.
(15) RELATED PARTY TRANSACTIONS
The Company has various routine related party transactions in conjunction with our holding company structure, such as management service agreements related to costs incurred, a tax sharing agreement between entities, and inter-company dividends and capital contributions. We perform an expense study on an annual basis, utilizing an enterprise-wide time study, and we adjust cost allocations among entities as needed based upon this review. Any allocation changes are reflected in the segment operations, but do not impact consolidated expenses. There were no changes related to these relationships during the year ended December 31, 2024 and no additional related party transactions.
(16) QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following table contains selected unaudited financial data for each quarter.
(In thousands, except per share amounts) Fourth
Quarter Third
Quarter Second
Quarter First
Quarter
Revenues $ 63,474 61,731 62,084 57,712
Benefits and expenses 59,758 58,694 58,782 52,787
Federal income tax expense (benefit) 95 247 (657) 383
Net income 3,621 2,790 3,959 4,542
Net income available to common shareholders 3,621 2,790 3,959 4,542
Basic earnings per share of Class A common stock 0.07 0.06 0.08 0.09
Diluted earnings per share of Class A common stock
0.07 0.05 0.08 0.09
Revenues $ 66,849 59,390 58,527 55,914
Benefits and expenses 58,075 54,749 52,483 49,199
Federal income tax expense (benefit) (1,967) 1,943 (82) 1,843
Net income
10,741 2,698 6,126 4,872
Net income available to common shareholders
10,741 2,698 6,126 4,872
Basic earnings per share of Class A common stock
0.21 0.06 0.12 0.10
Diluted earnings per share of Class A common stock
0.21 0.05 0.12 0.10
December 31, 2024 | 10-K 107
CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(17) SUBSEQUENT EVENTS
The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was issued and determined that no subsequent events need to be recognized or disclosed.
December 31, 2024 | 10-K 108
CITIZENS, INC. FINANCIAL SCHEDULES
Schedule II
Condensed Financial Information of Registrant
CITIZENS, INC. (Parent Company)
Balance Sheets
December 31,
(In thousands)
2024 2023
Assets:
Investment in subsidiaries (1)
$ 188,678 140,557
Fixed maturity securities, available-for-sale, at fair value
16,331 21,190
Equity securities, at fair value 21 23
Cash (restricted portion: $1,554 and none in 2024 and 2023, respectively)
4,272 3,905
Accrued investment income 197 230
Accounts receivable from subsidiaries (1)
4,292 4,332
Property and equipment, net 8,018 9,251
Other assets 283 1,151
Total assets $ 222,092 180,639
Liabilities and Stockholders' Equity:
Liabilities:
Accrued expense and other liabilities $ 11,737 8,510
Total liabilities 11,737 8,510
Stockholders' equity:
Common stock:
Class A 269,799 268,675
Class B 3,184 3,184
Retained earnings
57,062 42,150
Unrealized investment gains (losses) on securities held by parent and subsidiaries, net of tax (95,965) (118,155)
Treasury stock (23,725) (23,725)
Total stockholders' equity 210,355 172,129
Total liabilities and stockholders' equity $ 222,092 180,639
(1) Eliminated in consolidation.
Note to Schedule II:
Citizens, Inc.'s investments in consolidated subsidiaries are stated at cost plus equity in undistributed income of consolidated subsidiaries and unrealized gains (losses) on investments held by consolidated subsidiaries. The Company includes in its statements of operations and comprehensive income (loss) dividends from its subsidiaries and equity in income (loss) of consolidated subsidiaries, which represents the net income (loss) of each of its wholly-owned subsidiaries.
December 31, 2024 | 10-K 109
CITIZENS, INC. FINANCIAL SCHEDULES
Schedule II, Continued
Condensed Financial Information of Registrant
CITIZENS, INC. (Parent Company)
Statements of Operations and Comprehensive Income (Loss)
Years ended December 31,
(In thousands)
2024 2023
Comprehensive Income (Loss):
Revenues:
Management service fees (1)
$ 41,636 42,394
Investment income 4,900 1,083
Other 83 6
Investment related gains (losses), net (17) (63)
Total revenues 46,602 43,420
Expenses:
General expenses 47,470 44,642
Taxes, licenses and fees 216 158
Total expenses 47,686 44,800
Income (loss) before federal income tax expense (benefit) and equity in income (loss) of consolidated subsidiaries (1,084) (1,380)
Federal income tax expense (benefit) - 1,798
Income (loss) before equity in income (loss) of consolidated subsidiaries (1,084) (3,178)
Equity in income of consolidated subsidiaries
15,996 27,615
Net income
14,912 24,437
Other comprehensive income (loss) 22,190 18,889
Total comprehensive income (loss)
$ 37,102 43,326
(1) Eliminated in consolidation.
Note to Schedule II:
Citizens, Inc.'s investments in consolidated subsidiaries are stated at cost plus equity in undistributed income of consolidated subsidiaries and unrealized gains (losses) on investments held by consolidated subsidiaries. The Company includes in its statements of operations and comprehensive income (loss) dividends from its subsidiaries and equity in income (loss) of consolidated subsidiaries, which represents the net income (loss) of each of its wholly-owned subsidiaries.
December 31, 2024 | 10-K 110
CITIZENS, INC. FINANCIAL SCHEDULES
Schedule II, Continued
Condensed Financial Information of Registrant
CITIZENS, INC. (Parent Company)
Statements of Cash Flows
Years ended December 31,
(In thousands)
2024 2023
Cash flows from operating activities:
Net income
$ 14,912 24,437
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Investment related gains (losses), net 17 63
Equity in income of consolidated subsidiaries
(15,996) (27,615)
Change in accrued expenses and other liabilities 4,303 (1,398)
Change in federal income tax payable 828 -
Amortization of premiums and discounts on investments 81 107
Depreciation 243 228
Change in accrued investment income 32 112
Stock-based compensation 1,517 588
Decrease (increase) in receivable from subsidiaries and other assets 39 795
Other, net (23) 481
Net cash provided by (used in) operating activities 5,953 (2,202)
Cash flows from investing activities:
Purchases of fixed maturity securities, available-for-sale (5,066) (723)
Maturities and calls of fixed maturity securities, available-for-sale 9,989 6,027
Sales of fixed maturity securities, available-for-sale - 2,580
Sale of equity securities - 770
Purchases of property and equipment (106) (130)
Maturities of short-term investments - 750
Sales of short-term investments
- 499
Net cash provided by (used in) investing activities 4,817 9,773
Cash flows from financing activities:
Acquisition of treasury stock - (919)
Capital contribution to subsidiary (10,010) (4,850)
Other share repurchases
(393) (60)
Net cash provided by (used in) financing activities (10,403) (5,829)
Net increase (decrease) in cash 367 1,742
Cash at beginning of year 3,905 2,163
Cash at end of year $ 4,272 3,905
Note to Schedule II:
Citizens, Inc.'s investments in consolidated subsidiaries are stated at cost plus equity in undistributed income of consolidated subsidiaries and unrealized gains (losses) on investments held by consolidated subsidiaries. The Company includes in its statements of operations and comprehensive income (loss) dividends from its subsidiaries and equity in income (loss) of consolidated subsidiaries, which represents the net income (loss) of each of its wholly-owned subsidiaries.
December 31, 2024 | 10-K 111
CITIZENS, INC. FINANCIAL SCHEDULES
Schedule III
Consolidated Supplementary Insurance Information
Years ended December 31,
(In thousands)
2024 2023
Deferred policy acquisition costs:
Life Insurance $ 141,660 120,840
Home Service Insurance 57,975 54,928
Total consolidated deferred policy acquisition costs $ 199,635 175,768
Future policy benefit reserves and policy claims payable:
Life Insurance $ 931,302 970,327
Home Service Insurance 250,625 266,452
Total consolidated future policy benefit reserves and policy claims payable $ 1,181,927 1,236,779
Unearned premiums:
Life Insurance $ 1,232 1,356
Home Service Insurance 40 38
Total consolidated unearned premiums $ 1,272 1,394
Other policy claims and benefits payable:
Life Insurance $ 211,739 192,953
Home Service Insurance 23,187 23,638
Total consolidated other policy claims and benefits payable $ 234,926 216,591
December 31, 2024 | 10-K 112
CITIZENS, INC. FINANCIAL SCHEDULES
The Company's written premium is not materially different from earned premium, therefore only earned premiums are detailed in Schedule IV.
Schedule IV
Consolidated Statement of Reinsurance
(In thousands) Direct
Amount Ceded to
Other
Companies Assumed
From Other
Companies Net Amount % of
Amount
Assumed to
Net
Year ended December 31, 2024:
Life insurance in force $ 5,227,506 821,215 3,427 4,409,718 0.1 %
Premiums:
Life insurance $ 177,053 5,559 67 171,561
Accident and health insurance 1,788 3 - 1,785
Property insurance (5) 13 - (18)
Total premiums $ 178,836 5,575 67 173,328 - %
Year ended December 31, 2023:
Life insurance in force $ 4,922,254 619,597 3,772 4,306,429 0.1 %
Premiums:
Life insurance $ 166,336 1,795 68 164,609
Accident and health insurance 1,641 4 - 1,637
Property insurance 2,580 1,787 - 793
Total premiums $ 170,557 3,586 68 167,039 - %
December 31, 2024 | 10-K 113
EXHIBITS
Exhibit No. The following exhibits are filed herewith:
3.1
Restated and Amended Articles of Incorporation dated March 4, 2004 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 15, 2004)
3.2
Amended and Restated Bylaws dated June 2, 2021 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on June 7, 2021)
4.1*
Description of Securities of Citizens, Inc.
10.1
Form of Indemnification Agreement for Executive Officers (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on November 8, 2017)
10.2
Form of Indemnification Agreement for Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 8, 2017)
10.3†
Citizens, Inc. Omnibus Incentive Plan (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 filed by the Registrant on December 5, 2017)
10.4†
Form of Citizens, Inc. Employee Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K filed on March 29, 2018)
10.5†*
Form of Citizens, Inc. Executive Officer Performance Share Unit Agreement
10.6†
Form of Citizens, Inc. Non-employee Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 29, 2018)
10.7†
Executive Employment Agreement by and between Citizens, Inc. and Gerald W. Shields, effective as of January 1, 2022 (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on December 21, 2021)
10.8†
Amendment to Executive Employment Agreement by and between Citizens, Inc. and Gerald W. Shields, effective as of January 1, 2024 (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on November 15, 2023)
10.9†
Executive Employment Agreement by and between Citizens, Inc. and Jon Stenberg, entered into as of March 18, 2024 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 18, 2024)
10.10
Credit Agreement between the Company and Regions Bank dated May 5, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021)
10.11
Pledge and Security Agreement dated May 5, 2021 by and between Citizens, Inc. as obligor, and Regions Bank, as lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021)
10.12
First Amendment to Credit Agreement between the Company and Regions Bank dated May 3, 2024 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 6, 2024)
10.13†
Form of Executive Change in Leadership Agreement entered into on November 3, 2023, by and between the Company and each of the following Named Executive Officers: Jeffery P. Conklin, Sheryl Kinlaw, Robert M. Mauldin III and Harvey J.L. Waite (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on November 6, 2023)
10.14†
Compensation Recovery Policy (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report for the Year Ended December 31, 2023 on Form 10-K filed on March 14, 2024)
December 31, 2024 | 10-K 114
10.15†
Services Agreement between Citizens, Inc. and Robert M. Mauldin III effective August 2, 2024 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 7, 2024)
19*
Citizens, Inc. Insider Trading Policy
21*
Subsidiaries of the Registrant
23*
Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP
Power of Attorney (included on signature page enclosed herein)
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
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
104 Inline XBRL for the cover page of this Annual Report on Form 10-K for the year ended December 31, 2024, filed electronically herewith, included in the Exhibit 101 Inline XBRL Document Set.
† Indicates management contract or compensatory plan or arrangement.
* Filed herewith.