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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
COMMISSION FILE NUMBER: 000-16509
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CITIZENS, INC. |
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(Exact name of registrant as specified in its charter) |
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Colorado |
84-0755371 |
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(State or other jurisdiction of incorporation or
organization) |
(I.R.S. Employer Identification No.) |
11815 Alterra Pkwy, Floor 15, Austin, TX 78758
(Current Address)
Registrant's telephone number, including area code:
(512) 837-7100
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Securities registered pursuant to Section 12(b) of the
Act |
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Class A Common Stock |
CIA |
NYSE |
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(Title of each class) |
(Trading symbol(s)) |
(Name of each exchange on which registered) |
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
x
Yes
o
No
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
x
Yes
o
No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See
the definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company" and "emerging growth company" in Rule
12b-2 of the Exchange Act:
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Large accelerated filer |
☐ |
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Accelerated filer |
☒ |
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Emerging growth company |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
☐
Yes
x
No
As of May 2, 2022, the Registrant had 50,508,640 shares of
Class A common stock outstanding and 0 shares of Class B common
stock outstanding.
THIS PAGE INTENTIONALLY LEFT BLANK
TABLE OF CONTENTS
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Page Number |
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Part I. FINANCIAL INFORMATION |
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Item 1. |
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Item 2. |
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Item 3. |
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Item 4. |
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Part II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
March 31, 2022 |
|
December 31, 2021 |
|
Assets |
(Unaudited) |
|
|
|
Investments: |
|
|
|
|
Fixed maturity securities available-for-sale, at fair value
(amortized cost: $1,361,254 and $1,343,755 in 2022 and 2021,
respectively)
|
$ |
1,355,410 |
|
|
1,470,617 |
|
|
|
|
|
|
Equity securities, at fair value |
13,902 |
|
|
14,844 |
|
|
|
|
|
|
Policy loans |
79,345 |
|
|
80,307 |
|
|
|
|
|
|
|
|
|
|
Other long-term investments (portion measured at fair value $62,564
and $56,038 in 2022 and 2021, respectively)
|
63,927 |
|
|
57,399 |
|
|
|
|
|
|
Total investments |
1,512,584 |
|
|
1,623,167 |
|
|
Cash and cash equivalents |
21,298 |
|
|
27,294 |
|
|
Accrued investment income |
15,755 |
|
|
16,197 |
|
|
|
|
|
|
Reinsurance recoverable |
3,574 |
|
|
5,539 |
|
|
Deferred policy acquisition costs |
139,688 |
|
|
140,380 |
|
|
Cost of insurance acquired |
10,528 |
|
|
10,611 |
|
|
Current federal income tax receivable |
589 |
|
|
762 |
|
|
|
|
|
|
Property and equipment, net |
14,088 |
|
|
14,074 |
|
|
Due premiums |
8,971 |
|
|
10,748 |
|
|
|
|
|
|
Other assets (less allowance for losses of $109 and $111 in 2022
and 2021, respectively)
|
5,886 |
|
|
5,739 |
|
|
Total assets |
$ |
1,732,961 |
|
|
1,854,511 |
|
See accompanying Notes to Consolidated Financial
Statements.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets, Continued
|
|
|
|
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
(In thousands, except share amounts) |
March 31, 2022 |
|
December 31, 2021 |
|
Liabilities and Stockholders' Equity |
(Unaudited) |
|
|
|
Liabilities: |
|
|
|
|
Policy liabilities: |
|
|
|
|
Future policy benefit reserves: |
|
|
|
|
Life insurance |
$ |
1,284,792 |
|
|
1,278,987 |
|
|
Annuities |
85,662 |
|
|
83,918 |
|
|
Accident and health |
766 |
|
|
784 |
|
|
Dividend accumulations |
38,576 |
|
|
37,760 |
|
|
Premiums paid in advance |
40,433 |
|
|
40,690 |
|
|
Policy claims payable |
9,659 |
|
|
14,590 |
|
|
Other policyholders' funds |
32,656 |
|
|
30,690 |
|
|
Total policy liabilities |
1,492,544 |
|
|
1,487,419 |
|
|
Commissions payable |
1,816 |
|
|
2,285 |
|
|
|
|
|
|
Deferred federal income tax payable |
6,577 |
|
|
15,456 |
|
|
Payable for securities in process of settlement |
3,815 |
|
|
— |
|
|
Other liabilities |
31,307 |
|
|
28,780 |
|
|
Total liabilities |
1,536,059 |
|
|
1,533,940 |
|
Commitments and contingencies (Note
7)
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
Common stock: |
|
|
|
|
Class A, no par value, 100,000,000 shares authorized, 53,532,873
and 53,170,413 shares issued and outstanding in 2022 and 2021,
respectively, including shares in treasury of 3,135,738 in 2022 and
2021
|
267,442 |
|
|
265,561 |
|
|
Class B, no par value, 2,000,000 shares authorized, 1,001,714
shares issued and outstanding in 2022 and 2021, including shares in
treasury of 1,001,714 in 2022 and 2021
|
3,184 |
|
|
3,184 |
|
|
Accumulated deficit |
(46,898) |
|
|
(45,565) |
|
|
Accumulated other comprehensive income (loss): |
|
|
|
|
Net unrealized gains (losses) on fixed maturity securities, net of
tax |
(6,725) |
|
|
117,492 |
|
|
Treasury stock, at cost |
(20,101) |
|
|
(20,101) |
|
|
Total stockholders' equity |
196,902 |
|
|
320,571 |
|
|
Total liabilities and stockholders' equity |
$ |
1,732,961 |
|
|
1,854,511 |
|
See accompanying Notes to Consolidated Financial
Statements.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
(Loss)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In thousands, except per share amounts)
|
|
|
|
|
2022 |
|
2021 |
|
Revenues: |
|
|
|
|
|
|
|
|
Premiums: |
|
|
|
|
|
|
|
|
Life insurance |
|
|
|
|
$ |
37,746 |
|
|
37,642 |
|
|
Accident and health insurance |
|
|
|
|
286 |
|
|
343 |
|
|
Property insurance |
|
|
|
|
1,332 |
|
|
1,047 |
|
|
Net investment income |
|
|
|
|
15,487 |
|
|
15,244 |
|
|
Investment related gains (losses), net |
|
|
|
|
(582) |
|
|
292 |
|
|
Other income |
|
|
|
|
1,088 |
|
|
915 |
|
|
Total revenues |
|
|
|
|
55,357 |
|
|
55,483 |
|
|
Benefits and Expenses: |
|
|
|
|
|
|
|
|
Insurance benefits paid or provided: |
|
|
|
|
|
|
|
|
Claims and surrenders |
|
|
|
|
28,434 |
|
|
30,589 |
|
|
Increase in future policy benefit reserves |
|
|
|
|
6,569 |
|
|
5,232 |
|
|
Policyholders' dividends |
|
|
|
|
1,353 |
|
|
1,306 |
|
|
Total insurance benefits paid or provided |
|
|
|
|
36,356 |
|
|
37,127 |
|
|
Commissions |
|
|
|
|
7,673 |
|
|
8,157 |
|
|
Other general expenses |
|
|
|
|
11,030 |
|
|
11,382 |
|
|
Capitalization of deferred policy acquisition costs |
|
|
|
|
(4,781) |
|
|
(4,985) |
|
|
Amortization of deferred policy acquisition costs |
|
|
|
|
5,817 |
|
|
6,183 |
|
|
Amortization of cost of insurance acquired |
|
|
|
|
236 |
|
|
367 |
|
|
Total benefits and expenses |
|
|
|
|
56,331 |
|
|
58,231 |
|
|
Income (loss) before federal income tax |
|
|
|
|
(974) |
|
|
(2,748) |
|
|
Federal income tax expense (benefit) |
|
|
|
|
359 |
|
|
825 |
|
|
Net income (loss) |
|
|
|
|
(1,333) |
|
|
(3,573) |
|
|
Per Share Amounts: |
|
|
|
|
|
|
|
|
Basic and diluted earnings (losses) per share of Class A common
stock |
|
|
|
|
(0.03) |
|
|
(0.07) |
|
|
Basic and diluted earnings (losses) per share of Class B common
stock |
|
|
|
|
— |
|
|
(0.04) |
|
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
Unrealized gains (losses) on fixed maturity securities: |
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period |
|
|
|
|
(133,342) |
|
|
(55,898) |
|
|
Reclassification adjustment for losses (gains) included in net
income (loss) |
|
|
|
|
59 |
|
|
(35) |
|
|
Unrealized gains (losses) on fixed maturity securities,
net |
|
|
|
|
(133,283) |
|
|
(55,933) |
|
|
Income tax expense (benefit) on unrealized gains (losses) on fixed
maturity securities |
|
|
|
|
(9,066) |
|
|
585 |
|
|
Other comprehensive income (loss) |
|
|
|
|
(124,217) |
|
|
(56,518) |
|
|
Total comprehensive income (loss) |
|
|
|
|
$ |
(125,550) |
|
|
(60,091) |
|
See accompanying Notes to Consolidated Financial
Statements.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Accumulated
deficit |
|
Accumulated other
comprehensive
income (loss) |
|
Treasury
stock |
|
Total
Stock-holders'
equity |
|
(In thousands) |
Class A |
|
Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
$ |
265,561 |
|
|
3,184 |
|
|
(45,565) |
|
|
117,492 |
|
|
(20,101) |
|
|
320,571 |
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
— |
|
|
— |
|
|
(1,333) |
|
|
— |
|
|
— |
|
|
(1,333) |
|
|
Unrealized investment gains (losses), net |
— |
|
|
— |
|
|
— |
|
|
(124,217) |
|
|
— |
|
|
(124,217) |
|
|
Total comprehensive income (loss) |
— |
|
|
— |
|
|
(1,333) |
|
|
(124,217) |
|
|
— |
|
|
(125,550) |
|
|
Common stock issuance |
1,788 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,788 |
|
|
Stock-based compensation |
93 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
93 |
|
|
Balance at March 31, 2022 |
$ |
267,442 |
|
|
3,184 |
|
|
(46,898) |
|
|
(6,725) |
|
|
(20,101) |
|
|
196,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
$ |
262,869 |
|
|
3,184 |
|
|
(82,352) |
|
|
128,255 |
|
|
(11,011) |
|
|
300,945 |
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
— |
|
|
— |
|
|
(3,573) |
|
|
— |
|
|
— |
|
|
(3,573) |
|
|
Unrealized investment gains (losses), net |
— |
|
|
— |
|
|
— |
|
|
(56,518) |
|
|
— |
|
|
(56,518) |
|
|
Total comprehensive income (loss) |
— |
|
|
— |
|
|
(3,573) |
|
|
(56,518) |
|
|
— |
|
|
(60,091) |
|
|
Stock-based compensation |
(14) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(14) |
|
|
Balance at March 31, 2021 |
$ |
262,855 |
|
|
3,184 |
|
|
(85,925) |
|
|
71,737 |
|
|
(11,011) |
|
|
240,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial
Statements.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
(In thousands)
|
2022 |
|
2021 |
|
Cash flows from operating activities: |
|
|
|
|
Net income (loss) |
$ |
(1,333) |
|
|
(3,573) |
|
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
|
|
|
|
Investment related (gains) losses on sale of investments and other
assets |
582 |
|
|
(292) |
|
|
Net deferred policy acquisition costs |
1,036 |
|
|
1,198 |
|
|
Amortization of cost of insurance acquired |
236 |
|
|
367 |
|
|
Depreciation |
153 |
|
|
308 |
|
|
Amortization of premiums and discounts on investments |
1,386 |
|
|
1,323 |
|
|
Stock-based compensation |
132 |
|
|
76 |
|
|
Deferred federal income tax expense (benefit) |
187 |
|
|
(432) |
|
|
Change in: |
|
|
|
|
Accrued investment income |
442 |
|
|
275 |
|
|
Reinsurance recoverable |
1,965 |
|
|
1,410 |
|
|
Due premiums |
1,777 |
|
|
1,771 |
|
|
Future policy benefit reserves |
6,494 |
|
|
5,185 |
|
|
Other policyholders' liabilities |
(2,406) |
|
|
4,528 |
|
|
Federal income tax payable |
172 |
|
|
1,257 |
|
|
Commissions payable and other liabilities |
1,489 |
|
|
(11,317) |
|
|
Other, net |
(172) |
|
|
(275) |
|
|
Net cash provided by (used in) operating activities |
12,140 |
|
|
1,809 |
|
|
Cash flows from investing activities: |
|
|
|
|
Purchases of fixed maturity securities,
available-for-sale |
(26,050) |
|
|
(37,294) |
|
|
Sales of fixed maturity securities, available-for-sale |
1,100 |
|
|
4,445 |
|
|
Maturities and calls of fixed maturity securities,
available-for-sale |
10,435 |
|
|
14,376 |
|
|
|
|
|
|
Principal payments on mortgage loans |
2 |
|
|
4 |
|
|
|
|
|
|
(Increase) decrease in policy loans, net |
962 |
|
|
644 |
|
|
Sales of other long-term investments |
1,681 |
|
|
15,089 |
|
|
Purchases of other long-term investments |
(7,940) |
|
|
(4,619) |
|
|
|
|
|
|
Purchases of property and equipment |
(34) |
|
|
(15) |
|
|
|
|
|
|
Purchases of short-term investments |
(5) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
(19,849) |
|
|
(7,370) |
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial
Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES |
|
Consolidated Statements of Cash Flows, Continued |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
(In thousands)
|
2022 |
|
2021 |
|
Cash flows from financing activities: |
|
|
|
|
Annuity deposits |
$ |
2,227 |
|
|
2,431 |
|
|
Annuity withdrawals |
(2,263) |
|
|
(2,329) |
|
|
Acquisition of treasury stock |
— |
|
|
(9,090) |
|
|
Issuance of common stock |
1,788 |
|
|
— |
|
|
Other |
(39) |
|
|
(89) |
|
|
Net cash provided by (used in) financing activities |
1,713 |
|
|
(9,077) |
|
|
Net increase (decrease) in cash and cash equivalents |
(5,996) |
|
|
(14,638) |
|
|
Cash and cash equivalents at beginning of year |
27,294 |
|
|
34,131 |
|
|
Cash and cash equivalents at end of period |
$ |
21,298 |
|
|
19,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
During the three months ended March 31, 2022 and 2021, various
fixed maturity issuers exchanged securities with book values of
$0.6 million and $2.0 million, respectively, for securities of
equal value.
The Company had $3.8 million net unsettled security trades at
March 31, 2022 and $0.7 million at March 31,
2021.
The Company accrued purchases of property and equipment of $0.8
million as of March 31, 2021 and recorded none as of
March 31, 2022.
The Company recognized right-of-use assets of $0.4 million in
exchange for new operating lease liabilities during the three
months ended March 31, 2022 and none during the three months
ended March 31, 2021.
See accompanying Notes to Consolidated Financial
Statements.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
(1)
FINANCIAL STATEMENTS
BASIS OF PRESENTATION AND CONSOLIDATION
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"), CICA Life Ltd. ("CICA
International"), Citizens National Life Insurance Company
("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), Security
Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life
Insurance Company ("MGLIC") and Computing Technology, Inc. ("CTI").
All significant inter-company accounts and transactions have been
eliminated. Citizens and its wholly-owned subsidiaries are
collectively referred to as the "Company", "it", "we", "us" or
"our".
The consolidated balance sheet as of March 31, 2022, the
consolidated statements of operations and comprehensive income
(loss) and stockholders' equity for the three months ended
March 31, 2022 and March 31, 2021 and the consolidated
statements of cash flows for the three months ended March 31,
2022 and March 31, 2021 have been prepared by the Company
without audit and are not subject to audit. In the opinion of
management, all normal and recurring adjustments to present fairly
the financial position, results of operations, and changes in cash
flows at March 31, 2022 and for comparative periods have been
made. The consolidated financial statements have been prepared
in accordance with U.S. generally accepted accounting principles
("U.S. GAAP") for interim financial information and with the
instructions to Form 10-Q adopted by the Securities and Exchange
Commission ("SEC"). Accordingly, the consolidated
financial statements do not include all the information and
footnotes required for complete financial statements and should be
read in conjunction with the Company’s consolidated financial
statements and notes thereto included in our Annual Report
on
Form 10-K
for the year ended December 31, 2021 ("Form 10-K").
Operating results for the interim periods disclosed herein are not
necessarily indicative of the results that may be expected for a
full year or any future period.
Our Life Insurance segment operates through CICA International,
CICA and CNLIC. Our international life insurance business, which
operates through CICA International, issues U.S. dollar-denominated
endowment contracts internationally, which are principally
accumulation contracts that incorporate an element of life
insurance protection and ordinary whole life insurance in U.S.
dollar-denominated amounts sold to non-U.S.
residents. 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.
Our domestic life insurance business operates through CICA and
CNLIC. CICA issues credit life and disability policies and CNLIC
issues ordinary whole life policies mainly in Texas and Florida and
services whole life and accident and health policies primarily in
the Southern U.S., Midwest and Mountain West.
Our Home Service Insurance segment operates through our
subsidiaries SPLIC, MGLIC and SPFIC, 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 ordinary 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 as well as property insurance policies,
which cover dwelling and contents.
CTI provides data processing systems and services to the
Company.
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 the 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 from those
estimates.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
Significant estimates include those used in the evaluation of
credit allowances on fixed maturity securities, actuarially
determined assets and liabilities and assumptions and valuation
allowance on deferred tax assets. 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.
SIGNIFICANT ACCOUNTING POLICIES
For a description of our significant accounting policies, see Part
IV, Item 15, Note 1. Summary of Significant Accounting Policies in
the notes to our consolidated financial statements included in
our
Form 10-K,
which should be read in conjunction with these accompanying
consolidated financial statements.
(2)
ACCOUNTING PRONOUNCEMENTS
ACCOUNTING STANDARDS NOT YET ADOPTED
In August 2018, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2018-12,
Financial Services-Insurance (Topic 944): Targeted Improvements to
the Accounting for Long-Duration Contracts.
This ASU amends four key areas of the accounting and impacts
disclosures for long-duration insurance and investment
contracts:
•Requires
updated assumptions for liability measurement. Assumptions
used to measure the liability for traditional insurance contracts,
which are typically determined at contract inception, will now be
reviewed at least annually, and, if there is a change, updated,
with the effect recorded in net income;
•Standardizes
the liability discount rate. The
liability discount rate will be a market-observable discount rate
(upper-medium grade fixed-income instrument yield), with the effect
of rate changes recorded in other comprehensive
income;
•Provides
greater consistency in measurement of market risk
benefits. The
two previous measurement models have been reduced to one
measurement model (fair value), resulting in greater uniformity
across similar market-based benefits and better alignment with the
fair value measurement of derivatives used to hedge capital market
risk;
•Simplifies
amortization of deferred acquisition costs
("DAC"). Previous
earnings-based amortization methods have been replaced with a more
level amortization basis; and
•Requires
enhanced disclosures. The
new disclosures include rollforwards and information about
significant assumptions and the effects of changes in those
assumptions.
For calendar-year public companies, the changes will be effective
on January 1, 2023, however, early adoption is permitted. We will
adopt this ASU effective January 1, 2023 with a transition date of
January 1, 2021 using a modified retrospective approach. We
continue to make progress in our implementation process that
includes, but is not limited to, making significant accounting
policy decisions, employing appropriate internal controls, building
and updating actuarial models and systems, revising reporting
processes and developing informative qualitative and quantitative
disclosures. In 2022, we will begin the process of calculating our
transition adjustments and preparing for the restatement of
applicable periods. We are currently evaluating the impact of
adopting this ASU on our consolidated financial condition and
results of operations and will be able to better assess the effects
as we progress with our implementation efforts. While it is not
possible to estimate the expected impact of adoption at this time,
the Company believes there is a reasonable possibility that
implementation this ASU may result in a material impact to
accumulated other comprehensive income and future earnings
patterns.
No other new accounting pronouncements issued or effective during
the year had, or is expected to have, a material impact on our
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
(3)
SEGMENT INFORMATION
The Company has two reportable segments: Life Insurance
and Home Service Insurance. Our Life Insurance segment
primarily issues endowment contracts, which are principally
accumulation contracts that incorporate an element of life
insurance protection and ordinary 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 issues credit life and disability and accident and health
related policies throughout the Midwest and southern U.S. CNLIC
issues ordinary whole life in Florida.
Our Home Service Insurance segment operates through our
subsidiaries SPLIC, MGLIC and SPFIC, and focuses on the life
insurance needs of the middle- and lower-income markets, primarily
in Louisiana, Mississippi and Arkansas. Our policies are
sold and serviced through funeral homes and independent agents who
sell policies, collect premiums and service
policyholders. Our Home Service Insurance segment also
sells property insurance policies in Louisiana and
Arkansas.
The Life Insurance and Home Service Insurance portions of the
company constitute separate businesses. 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 that are included in the tables
presented below to properly reconcile the segment information with
the consolidated financial statements of the Company. The Company's
Other Non-Insurance Enterprises are the only reportable difference
between segments and consolidated operations.
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 used in the preparation of the
consolidated financial statements. The Company evaluates
profit and loss performance based on U.S. GAAP income or loss
before federal income taxes for its two reportable
segments.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
Home Service Insurance |
|
Other Non-Insurance Enterprises |
|
Consolidated |
|
Three Months Ended March 31, 2022 |
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
Premiums |
$ |
26,931 |
|
|
12,433 |
|
|
— |
|
|
39,364 |
|
|
Net investment income |
11,971 |
|
|
3,244 |
|
|
272 |
|
|
15,487 |
|
|
Investment related gains (losses), net |
(293) |
|
|
(242) |
|
|
(47) |
|
|
(582) |
|
|
Other income |
1,088 |
|
|
— |
|
|
— |
|
|
1,088 |
|
|
Total revenues |
39,697 |
|
|
15,435 |
|
|
225 |
|
|
55,357 |
|
|
Benefits and expenses: |
|
|
|
|
|
|
|
|
Insurance benefits paid or provided: |
|
|
|
|
|
|
|
|
Claims and surrenders |
21,458 |
|
|
6,976 |
|
|
— |
|
|
28,434 |
|
|
Increase in future policy benefit reserves |
5,130 |
|
|
1,439 |
|
|
— |
|
|
6,569 |
|
|
Policyholders' dividends |
1,350 |
|
|
3 |
|
|
— |
|
|
1,353 |
|
|
Total insurance benefits paid or provided |
27,938 |
|
|
8,418 |
|
|
— |
|
|
36,356 |
|
|
Commissions |
3,806 |
|
|
3,867 |
|
|
— |
|
|
7,673 |
|
|
Other general expenses |
5,691 |
|
|
4,350 |
|
|
989 |
|
|
11,030 |
|
|
Capitalization of deferred policy acquisition costs |
(3,306) |
|
|
(1,475) |
|
|
— |
|
|
(4,781) |
|
|
Amortization of deferred policy acquisition costs |
4,482 |
|
|
1,335 |
|
|
— |
|
|
5,817 |
|
|
Amortization of cost of insurance acquired |
56 |
|
|
180 |
|
|
— |
|
|
236 |
|
|
Total benefits and expenses |
38,667 |
|
|
16,675 |
|
|
989 |
|
|
56,331 |
|
|
Income (loss) before federal income tax expense |
$ |
1,030 |
|
|
(1,240) |
|
|
(764) |
|
|
(974) |
|
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
Home Service Insurance |
|
Other Non-Insurance Enterprises |
|
Consolidated |
|
Three Months Ended March 31, 2021 |
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
Premiums |
$ |
27,063 |
|
|
11,969 |
|
|
— |
|
|
39,032 |
|
|
Net investment income |
11,598 |
|
|
3,345 |
|
|
301 |
|
|
15,244 |
|
|
Investment related gains (losses), net |
(108) |
|
|
223 |
|
|
177 |
|
|
292 |
|
|
Other income |
913 |
|
|
2 |
|
|
— |
|
|
915 |
|
|
Total revenues |
39,466 |
|
|
15,539 |
|
|
478 |
|
|
55,483 |
|
|
Benefits and expenses: |
|
|
|
|
|
|
|
|
Insurance benefits paid or provided: |
|
|
|
|
|
|
|
|
Claims and surrenders |
23,270 |
|
|
7,319 |
|
|
— |
|
|
30,589 |
|
|
Increase in future policy benefit reserves |
3,658 |
|
|
1,574 |
|
|
— |
|
|
5,232 |
|
|
Policyholders' dividends |
1,296 |
|
|
10 |
|
|
— |
|
|
1,306 |
|
|
Total insurance benefits paid or provided |
28,224 |
|
|
8,903 |
|
|
— |
|
|
37,127 |
|
|
Commissions |
4,231 |
|
|
3,926 |
|
|
— |
|
|
8,157 |
|
|
Other general expenses |
5,226 |
|
|
3,794 |
|
|
2,362 |
|
|
11,382 |
|
|
Capitalization of deferred policy acquisition costs |
(3,561) |
|
|
(1,424) |
|
|
— |
|
|
(4,985) |
|
|
Amortization of deferred policy acquisition costs |
5,348 |
|
|
835 |
|
|
— |
|
|
6,183 |
|
|
Amortization of cost of insurance acquired |
104 |
|
|
263 |
|
|
— |
|
|
367 |
|
|
Total benefits and expenses |
39,572 |
|
|
16,297 |
|
|
2,362 |
|
|
58,231 |
|
|
Income (loss) before federal income tax expense |
$ |
(106) |
|
|
(758) |
|
|
(1,884) |
|
|
(2,748) |
|
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
(4)
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. The two 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. In April 2021, we repurchased all of the
outstanding Class B common stock, which is now classified as
treasury stock. As a result, all of the directors are elected by
the holders of the Class A common stock. Citizens has never issued
any preferred stock.
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings (loss) per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
2022 |
|
2021 |
|
(In thousands, except per share amounts) |
|
|
Basic and diluted earnings (loss) per share: |
|
|
|
|
Numerator: |
|
|
|
|
Net income (loss) |
$ |
(1,333) |
|
|
(3,573) |
|
|
Net income (loss) allocated to Class A common stock |
$ |
(1,333) |
|
|
(3,537) |
|
|
Net income (loss) allocated to Class B common stock |
— |
|
|
(36) |
|
|
Net income (loss) |
$ |
(1,333) |
|
|
(3,573) |
|
|
|
|
|
|
Denominator: |
|
|
|
|
Weighted average shares of Class A outstanding - basic |
50,236 |
|
|
49,549 |
|
|
Weighted average shares of Class A outstanding -
diluted |
50,906 |
|
|
50,116 |
|
|
Weighted average shares of Class B outstanding - basic and
diluted |
— |
|
|
1,002 |
|
|
Basic and diluted earnings (loss) per share of Class A common
stock |
$ |
(0.03) |
|
|
(0.07) |
|
|
Basic and diluted earnings (loss) per share of Class B common
stock |
— |
|
|
(0.04) |
|
CAPITAL AND SURPLUS
Each of our regulated insurance subsidiaries is required to meet
stipulated regulatory capital requirements. These include capital
requirements imposed by the U.S. National Association of Insurance
Commissioners ("NAIC") and the Bermuda Monetary Authority ("BMA").
All insurance subsidiaries exceeded the minimum capital
requirements at March 31, 2022.
In order to minimize the risk of a shortfall in capital arising
from an unexpected adverse deviation or excess risk, the BMA has
established a threshold capital level (termed the Target Capital
Level ("TCL")), which is set at 120% of a company’s enhanced
capital requirement. The TCL serves as an early warning tool for
the BMA. As of March 31, 2022, CICA International was above
the TCL threshold. At the request of the BMA, on April 15, 2021,
Citizens and CICA International entered into a Keep Well Agreement.
The Keep Well Agreement requires Citizens to contribute up to
$10 million in capital to CICA International as necessary to
ensure that CICA International has a minimum capital level of 120%
(equal to the TCL). Since CICA International’s capital level
currently exceeds 120%, Citizens is not currently required to make
a capital contribution.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
(5)
INVESTMENTS
The Company invests primarily in fixed maturity securities, which
totaled 88.4% of total cash and invested assets at March 31,
2022, as shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
(In thousands, except for %)
|
March 31, 2022 |
|
December 31, 2021 |
|
Amount |
|
% |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
|
Cash and invested assets: |
|
|
|
|
|
|
|
|
Fixed maturity securities |
$ |
1,355,410 |
|
|
88.4 |
% |
|
1,470,617 |
|
|
89.0 |
% |
|
Equity securities |
13,902 |
|
|
0.9 |
% |
|
14,844 |
|
|
0.9 |
% |
|
Policy loans |
79,345 |
|
|
5.2 |
% |
|
80,307 |
|
|
4.9 |
% |
|
Other long-term investments |
63,927 |
|
|
4.2 |
% |
|
57,399 |
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
21,298 |
|
|
1.3 |
% |
|
27,294 |
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
Total cash and invested assets |
$ |
1,533,882 |
|
|
100.0 |
% |
|
1,650,461 |
|
|
100.0 |
% |
The following tables represent the amortized cost, gross unrealized
gains and losses and fair value of fixed maturity securities as of
the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair
Value |
|
March 31, 2022 |
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities: |
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
U.S. Treasury securities |
$ |
9,494 |
|
|
681 |
|
|
5 |
|
|
10,170 |
|
|
U.S. Government-sponsored enterprises |
3,456 |
|
|
693 |
|
|
— |
|
|
4,149 |
|
|
States and political subdivisions |
354,513 |
|
|
13,363 |
|
|
9,481 |
|
|
358,395 |
|
|
Corporate: |
|
|
|
|
|
|
|
|
Financial |
220,033 |
|
|
4,394 |
|
|
9,036 |
|
|
215,391 |
|
|
Consumer |
227,963 |
|
|
7,180 |
|
|
12,375 |
|
|
222,768 |
|
|
Energy |
76,884 |
|
|
1,684 |
|
|
1,905 |
|
|
76,663 |
|
|
All other |
305,831 |
|
|
7,191 |
|
|
13,714 |
|
|
299,308 |
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed |
117,848 |
|
|
5,549 |
|
|
235 |
|
|
123,162 |
|
|
Asset-backed |
45,131 |
|
|
268 |
|
|
102 |
|
|
45,297 |
|
|
Foreign governments |
101 |
|
|
6 |
|
|
— |
|
|
107 |
|
|
Total fixed maturity securities |
$ |
1,361,254 |
|
|
41,009 |
|
|
46,853 |
|
|
1,355,410 |
|
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair
Value |
|
December 31, 2021 |
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Fixed maturity securities: |
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
U.S. Treasury securities |
$ |
9,515 |
|
|
1,097 |
|
|
1 |
|
|
10,611 |
|
|
U.S. Government-sponsored enterprises |
3,463 |
|
|
996 |
|
|
— |
|
|
4,459 |
|
|
States and political subdivisions |
356,594 |
|
|
28,056 |
|
|
692 |
|
|
383,958 |
|
|
Corporate: |
|
|
|
|
|
|
|
|
Financial |
213,652 |
|
|
22,477 |
|
|
172 |
|
|
235,957 |
|
|
Consumer |
219,223 |
|
|
23,658 |
|
|
900 |
|
|
241,981 |
|
|
Energy |
76,989 |
|
|
7,334 |
|
|
68 |
|
|
84,255 |
|
|
All other |
302,141 |
|
|
29,855 |
|
|
1,181 |
|
|
330,815 |
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed |
117,755 |
|
|
16,046 |
|
|
6 |
|
|
133,795 |
|
|
Asset-backed |
44,322 |
|
|
368 |
|
|
14 |
|
|
44,676 |
|
|
Foreign governments |
101 |
|
|
9 |
|
|
— |
|
|
110 |
|
|
Total fixed maturity securities |
$ |
1,343,755 |
|
|
129,896 |
|
|
3,034 |
|
|
1,470,617 |
|
Most of the Company's equity securities are diversified stock and
bond mutual funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
(In thousands)
|
March 31, 2022 |
|
December 31, 2021 |
|
|
|
|
|
|
Equity securities: |
|
|
|
|
Stock mutual funds |
$ |
3,476 |
|
|
3,571 |
|
|
Bond mutual funds |
4,880 |
|
|
5,060 |
|
|
Common stock |
957 |
|
|
990 |
|
|
Non-redeemable preferred stock |
10 |
|
|
161 |
|
|
Non-redeemable preferred stock fund |
4,579 |
|
|
5,062 |
|
|
Total equity securities |
$ |
13,902 |
|
|
14,844 |
|
VALUATION OF INVESTMENTS
Available-for-sale ("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. The Company recognized net investment
related losses of $0.8 million on equity securities held for the
three months ended March 31, 2022 and gains of $0.3 million
for the same period ended March 31, 2021.
The Company considers several factors in its review and evaluation
of individual investments, using the process described in Part IV,
Item 15, Note 2. Investments in the notes to the consolidated
financial statements of our
Form 10-K
to determine whether a credit loss impairment exists. For the three
months ended March 31, 2022 and 2021, the Company recorded no
credit valuation losses on fixed maturity securities.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
The following tables present the fair values and gross unrealized
losses of fixed maturity securities that are not deemed to have
credit losses, aggregated by investment category and length of time
that individual securities have been in a continuous loss position
at March 31, 2022 and December 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
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: |
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
$ |
68 |
|
5 |
|
2 |
|
— |
|
— |
|
— |
|
68 |
|
5 |
|
2 |
|
|
States and political subdivisions |
93,810 |
|
9,274 |
|
103 |
|
807 |
|
207 |
|
2 |
|
94,617 |
|
9,481 |
|
105 |
|
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
Financial |
100,331 |
|
8,800 |
|
124 |
|
1,075 |
|
236 |
|
1 |
|
101,406 |
|
9,036 |
|
125 |
|
|
Consumer |
118,748 |
|
11,657 |
|
139 |
|
3,348 |
|
718 |
|
7 |
|
122,096 |
|
12,375 |
|
146 |
|
|
Energy |
30,597 |
|
1,905 |
|
37 |
|
— |
|
— |
|
— |
|
30,597 |
|
1,905 |
|
37 |
|
|
All Other |
139,085 |
|
11,752 |
|
187 |
|
8,747 |
|
1,962 |
|
6 |
|
147,832 |
|
13,714 |
|
193 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed |
4,793 |
|
235 |
|
14 |
|
— |
|
— |
|
— |
|
4,793 |
|
235 |
|
14 |
|
|
Asset-backed |
21,315 |
|
99 |
|
24 |
|
662 |
|
3 |
|
1 |
|
21,977 |
|
102 |
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities |
$ |
508,747 |
|
43,727 |
|
630 |
|
14,639 |
|
3,126 |
|
17 |
|
523,386 |
|
46,853 |
|
647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
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: |
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored enterprises |
$ |
72 |
|
1 |
|
2 |
|
— |
|
— |
|
— |
|
72 |
|
1 |
|
2 |
|
|
States and political subdivisions |
21,715 |
|
692 |
|
15 |
|
— |
|
— |
|
— |
|
21,715 |
|
692 |
|
15 |
|
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
Financial |
8,059 |
|
86 |
|
15 |
|
1,227 |
|
86 |
|
1 |
|
9,286 |
|
172 |
|
16 |
|
|
Consumer |
29,494 |
|
777 |
|
28 |
|
2,419 |
|
123 |
|
1 |
|
31,913 |
|
900 |
|
29 |
|
|
Energy |
7,381 |
|
68 |
|
8 |
|
— |
|
— |
|
— |
|
7,381 |
|
68 |
|
8 |
|
|
All Other |
33,384 |
|
781 |
|
30 |
|
4,523 |
|
400 |
|
4 |
|
37,907 |
|
1,181 |
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed |
1,084 |
|
6 |
|
6 |
|
— |
|
— |
|
— |
|
1,084 |
|
6 |
|
6 |
|
|
Asset-backed |
9,078 |
|
12 |
|
11 |
|
663 |
|
2 |
|
1 |
|
9,741 |
|
14 |
|
12 |
|
|
Total fixed maturity securities |
$ |
110,267 |
|
2,423 |
|
115 |
|
8,832 |
|
611 |
|
7 |
|
119,099 |
|
3,034 |
|
122 |
|
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. These unrealized
losses on fixed maturity securities are due to noncredit-related
factors, including interest rate sensitivity and other market
conditions, 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. While
the losses are currently unrealized, we
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
continue to monitor all fixed maturity securities on an ongoing
basis as future information may become available which could result
in an allowance being recorded.
The amortized cost and fair value of fixed maturity securities at
March 31, 2022 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
Amortized
Cost |
|
Fair
Value |
|
(In thousands) |
|
|
Fixed maturity securities: |
|
|
|
|
Due in one year or less |
$ |
43,909 |
|
|
44,649 |
|
|
Due after one year through five years |
110,505 |
|
|
113,784 |
|
|
Due after five years through ten years |
214,028 |
|
|
221,903 |
|
|
Due after ten years |
992,812 |
|
|
975,074 |
|
|
Total fixed maturity securities |
$ |
1,361,254 |
|
|
1,355,410 |
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
Fixed Maturity Securities, Available-for-Sale |
|
|
March 31, |
|
|
|
|
|
(In thousands) |
|
|
|
2022 |
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
|
|
$ |
1,100 |
|
7,254 |
|
|
|
|
|
|
|
|
Gross realized gains |
|
|
|
$ |
— |
|
100 |
|
|
|
|
|
|
|
|
Gross realized losses |
|
|
|
$ |
— |
|
1 |
|
|
|
|
|
|
|
The Company sold 1 and 18 AFS fixed maturity securities during the
three months ended March 31, 2022 and 2021,
respectively.
(6)
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. We also
report our equity securities and other long-term investments at
fair value with changes in fair value reported through the
consolidated statements of operations and comprehensive income
(loss).
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
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total
Fair Value |
|
(In thousands) |
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
Fixed maturity securities available-for-sale |
|
|
|
|
|
|
|
|
U.S. Treasury and U.S. Government-sponsored enterprises |
$ |
10,170 |
|
|
4,149 |
|
|
— |
|
|
14,319 |
|
|
States and political subdivisions |
— |
|
|
358,395 |
|
|
— |
|
|
358,395 |
|
|
Corporate |
50 |
|
|
814,080 |
|
|
— |
|
|
814,130 |
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed |
— |
|
|
123,162 |
|
|
— |
|
|
123,162 |
|
|
Asset-backed |
— |
|
|
45,297 |
|
|
— |
|
|
45,297 |
|
|
Foreign governments |
— |
|
|
107 |
|
|
— |
|
|
107 |
|
|
Total fixed maturity securities available-for-sale |
10,220 |
|
|
1,345,190 |
|
|
— |
|
|
1,355,410 |
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
Stock mutual funds |
3,476 |
|
|
— |
|
|
— |
|
|
3,476 |
|
|
Bond mutual funds |
4,880 |
|
|
— |
|
|
— |
|
|
4,880 |
|
|
Common stock |
957 |
|
|
— |
|
|
— |
|
|
957 |
|
|
Non-redeemable preferred stock |
10 |
|
|
— |
|
|
— |
|
|
10 |
|
|
Non-redeemable preferred stock fund |
4,579 |
|
|
— |
|
|
— |
|
|
4,579 |
|
|
Total equity securities |
13,902 |
|
|
— |
|
|
— |
|
|
13,902 |
|
|
Other long-term investments
(1)
|
— |
|
|
— |
|
|
— |
|
|
62,564 |
|
|
Total financial assets |
$ |
24,122 |
|
|
1,345,190 |
|
|
— |
|
|
1,431,876 |
|
(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 are not classified in the fair
value hierarchy. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to
the amounts presented in the consolidated balance
sheet.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total
Fair Value |
|
(In thousands) |
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
Fixed maturity securities available-for-sale |
|
|
|
|
|
|
|
|
U.S. Treasury and U.S. Government-sponsored enterprises |
$ |
10,611 |
|
|
4,459 |
|
|
— |
|
|
15,070 |
|
|
States and political subdivisions |
— |
|
|
383,958 |
|
|
— |
|
|
383,958 |
|
|
Corporate |
51 |
|
|
892,957 |
|
|
— |
|
|
893,008 |
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed |
— |
|
|
133,795 |
|
|
— |
|
|
133,795 |
|
|
Asset-backed |
— |
|
|
44,676 |
|
|
— |
|
|
44,676 |
|
|
Foreign governments |
— |
|
|
110 |
|
|
— |
|
|
110 |
|
|
Total fixed maturity securities available-for-sale |
10,662 |
|
|
1,459,955 |
|
|
— |
|
|
1,470,617 |
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
Stock mutual funds |
3,571 |
|
|
— |
|
|
— |
|
|
3,571 |
|
|
Bond mutual funds |
5,060 |
|
|
— |
|
|
— |
|
|
5,060 |
|
|
Common stock |
990 |
|
|
— |
|
|
— |
|
|
990 |
|
|
Non-redeemable preferred stock |
161 |
|
|
— |
|
|
— |
|
|
161 |
|
|
Non-redeemable preferred stock fund |
5,062 |
|
|
— |
|
|
— |
|
|
5,062 |
|
|
Total equity securities |
14,844 |
|
|
— |
|
|
— |
|
|
14,844 |
|
|
Other long-term investments
(1)
|
— |
|
|
— |
|
|
— |
|
|
56,038 |
|
|
Total financial assets |
$ |
25,506 |
|
|
1,459,955 |
|
|
— |
|
|
1,541,499 |
|
|
(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 are not classified in the fair
value hierarchy. The fair value amounts presented in this table are
intended to 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
March 31, 2022, fixed maturity securities, valued using a
third-party pricing source, totaled $1.3 billion for Level 2
assets and comprised 93.9% 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 at March 31, 2022. For the three months
ended March 31, 2022, 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 tables
include 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. Changes in the NAV of our
limited partnerships are recorded through net income. The Company
recognized net investment
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
related losses of $0.8 million on limited partnerships held for the
three months ended March 31, 2022. These investments are
included in other long-term investments on the consolidated balance
sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
|
|
|
Fair Value
Using NAV Per Share |
Unfunded Commit-
ments |
Life
in years |
|
Fair Value
Using NAV Per Share |
Unfunded Commit-
ments |
Life
in years |
|
(In thousands, except years) |
|
|
Limited partnerships |
|
|
|
|
|
|
|
|
Middle market |
Investments in privately-originated, performing senior secured debt
primarily in North America-based companies |
$ |
27,336 |
|
13,593 |
|
9 |
|
$ |
21,947 |
|
18,712 |
|
10 |
|
Global equity fund |
Investments in common stocks of U.S., international developed and
emerging markets with a focus on long-term capital
growth |
9,890 |
|
— |
|
0 |
|
10,607 |
|
— |
|
0 |
|
|
|
|
|
|
|
|
|
|
Late-stage growth |
Investments in private late-stage, established companies seeking
capital to accelerate growth prior to an IPO or sale |
21,564 |
|
7,256 |
|
6 |
|
20,468 |
|
4,459 |
|
6 |
|
Infrastructure |
Investments in climate infrastructure assets, focusing on renewable
power generation in wind and solar energy |
3,774 |
|
15,970 |
|
11 |
|
3,016 |
|
16,653 |
|
12 |
|
Total limited partnerships |
$ |
62,564 |
|
36,819 |
|
|
|
$ |
56,038 |
|
39,824 |
|
|
The majority of our limited partnership investments are not
redeemable because distributions from the funds will be received
when the underlying investments of the partnerships 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.
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. We carried no limited partnership investments at cost at
March 31, 2022 and December 31, 2021.
We review the fair value hierarchy classifications each reporting
period. Changes in the observability of the valuation
attributes may result in a reclassification of certain financial
assets. Such reclassifications are reported as transfers
in and out of Level 3 at the beginning fair value for the reporting
period in which the changes occur. There were no transfers in or
out of Level 3 during the three months ended March 31, 2022 or
2021.
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 fair values of financial instruments
presented below are not necessarily indicative of the amounts the
Company might realize in actual market transactions.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
The carrying amount and fair value for the financial assets and
liabilities on the consolidated balance sheets not otherwise
disclosed for the periods indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
|
(In thousands) |
Carrying
Value |
|
Fair
Value |
|
Carrying
Value |
|
Fair
Value |
|
|
|
|
|
|
|
|
|
|
Financial Assets: |
|
|
|
|
|
|
|
|
Policy loans |
$ |
79,345 |
|
|
79,345 |
|
|
80,307 |
|
|
80,307 |
|
|
Commercial mortgage loan |
1,000 |
|
|
1,000 |
|
|
1,000 |
|
|
1,000 |
|
|
Residential mortgage loans |
145 |
|
|
167 |
|
|
148 |
|
|
169 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
21,298 |
|
|
21,298 |
|
|
27,294 |
|
|
27,294 |
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
Annuity - investment contracts |
65,063 |
|
|
67,272 |
|
|
64,384 |
|
|
72,352 |
|
Policy loans.
Policy loans had a weighted average annual interest rate of 7.7% at
March 31, 2022 and December 31, 2021 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 and policy
loans are considered Level 3 assets in the fair value
hierarchy.
Commercial mortgage loan.
We financed $1.0 million of the sale of our training facility at a
6.0% interest rate. The loan is due in less than 1 year. Due to the
short-term nature of the loan, the carrying value approximates fair
value and is considered a Level 3 asset in the fair value
hierarchy.
Residential mortgage loans.
Mortgage loans are secured principally by residential
properties. Weighted average interest rates for these
loans were approximately 6.4% at March 31, 2022 and
December 31, 2021. At March 31, 2022, maturities ranged
from 5 to 18 years. Management estimated the fair value
using an annual interest rate of 6.25% at March 31,
2022. Our mortgage loans are considered Level 3 assets
in the fair value hierarchy and are included in other long-term
investments on the consolidated balance sheets.
Cash and cash equivalents.
The fair value of cash and cash equivalents approximate carrying
value and are characterized as Level 1 assets in the fair value
hierarchy.
Annuity liabilities.
The fair value of the Company's liabilities under annuity contract
policies, which are considered Level 3 liabilities, was estimated
at March 31, 2022 and December 31, 2021 using discounted
cash flows based upon spot rates adjusted for various risk
adjustments ranging from 1.57% to 3.23% and 0.50% to 2.63%,
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.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
(In thousands)
|
March 31, 2022 |
|
December 31, 2021 |
|
Other long-term investments: |
|
|
|
|
Limited partnerships |
$ |
62,564 |
|
|
56,038 |
|
|
FHLB common stock |
192 |
|
|
192 |
|
|
Mortgage loans |
1,145 |
|
|
1,148 |
|
|
All other investments |
26 |
|
|
21 |
|
|
Total other long-term investments |
$ |
63,927 |
|
|
57,399 |
|
We are a member of the Federal Home Loan Bank ("FHLB") of Dallas
and such membership requires members to own stock in FHLB. Our FHLB
stock is carried at amortized cost, which approximates fair
value.
(7)
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 operations and financial
condition.
CONTRACTUAL OBLIGATIONS
As of March 31, 2022, CICA International is committed to fund
investments up to $36.8 million related to limited
partnerships previously described and other
investments.
CREDIT FACILITY
On May 5, 2021, the Company entered into a $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, 2024, 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 base
rate, which is 1.75% plus a base 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 one-month LIBOR rate plus
1%, and (d) 0.75%; or an adjusted LIBOR rate, which is 2.75% plus
an adjusted LIBOR rate but cannot be less than 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 in
all of the regulated insurance 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 March 31, 2022, the Company had not borrowed
any funds against the Credit Facility and was not in violation of
any covenants.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
(8)
INCOME TAXES
CICA International, a wholly owned subsidiary of Citizens, is
considered a controlled foreign corporation for federal tax
purposes. As a result, the insurance activity of CICA International
is subject to Subpart F of the IRC and is included in Citizens’
taxable income. Due to the 0% enacted tax rate in Bermuda, there
are no deferred taxes recorded for CICA International's temporary
differences. For the three months ended March 31, 2022 and
March 31, 2021, the Subpart F income inclusion generated
$0.8 million and $0.4 million, respectively, of federal
income tax expense.
A reconciliation between the U.S. corporate income tax rate and the
effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
2022 |
|
2021 |
|
(In thousands, except for %) |
Amount |
|
% |
|
Amount |
|
% |
|
Federal income tax expense: |
|
|
|
|
|
|
|
|
Expected tax expense (benefit) |
$ |
(205) |
|
|
21.0 |
% |
|
$ |
(577) |
|
|
21.0 |
% |
|
|
|
|
|
|
|
|
|
Foreign income tax rate differential |
(299) |
|
|
30.7 |
% |
|
(152) |
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt interest and dividends-received deduction |
(25) |
|
|
2.6 |
% |
|
(30) |
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
Annualized effective tax rate adjustment |
97 |
|
|
(10.0) |
% |
|
655 |
|
|
(23.8) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of uncertain tax position |
12 |
|
|
(1.2) |
% |
|
603 |
|
|
(21.9) |
% |
|
|
|
|
|
|
|
|
|
CICA International Subpart F income |
754 |
|
|
(77.4) |
% |
|
392 |
|
|
(14.3) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductible officer compensation |
21 |
|
|
(2.2) |
% |
|
(73) |
|
|
2.7 |
% |
|
Other |
4 |
|
|
(0.4) |
% |
|
7 |
|
|
(0.3) |
% |
|
Total federal income tax expense (benefit) |
$ |
359 |
|
|
(36.9) |
% |
|
$ |
825 |
|
|
(30.0) |
% |
Income tax expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(In thousands) |
|
|
|
|
2022 |
|
2021 |
|
Federal income tax expense: |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
$ |
172 |
|
|
1,257 |
|
|
Deferred |
|
|
|
|
187 |
|
|
(432) |
|
|
Total federal income tax expense |
|
|
|
|
$ |
359 |
|
|
825 |
|
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
(Unaudited)
|
(9) OTHER COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss)
are reported net of the effects of income taxes of 21% as of the
three months ended March 31, 2022 and 2021, as indicated
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
2022 |
|
2021 |
|
(In thousands) |
Amount |
|
Tax Effect |
|
Total |
|
Amount |
|
Tax Effect |
|
Total |
|
Unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the
period |
$ |
(132,765) |
|
|
8,957 |
|
|
(123,808) |
|
|
(79,422) |
|
|
5,373 |
|
|
(74,049) |
|
|
Reclassification adjustment for (gains) losses included in net
income |
59 |
|
|
(12) |
|
|
47 |
|
|
(35) |
|
|
7 |
|
|
(28) |
|
|
Effects on deferred policy acquisition costs |
344 |
|
|
(72) |
|
|
272 |
|
|
25,198 |
|
|
(6,317) |
|
|
18,881 |
|
|
Effects on cost of insurance acquired |
152 |
|
|
(32) |
|
|
120 |
|
|
269 |
|
|
(56) |
|
|
213 |
|
|
Effects on unearned revenue reserves |
(1,073) |
|
|
225 |
|
|
(848) |
|
|
(1,943) |
|
|
408 |
|
|
(1,535) |
|
|
Other comprehensive income (loss) |
$ |
(133,283) |
|
|
9,066 |
|
|
(124,217) |
|
|
(55,933) |
|
|
(585) |
|
|
(56,518) |
|
(10)
RELATED PARTY TRANSACTIONS
The Company has various routine related party transactions in
conjunction with our holding company structure, such as a
management service agreement related to costs incurred, a tax
sharing agreement between entities, and inter-company dividends and
capital contributions. There were no changes related to these
relationships during the three months ended March 31,
2022. See our
Form 10-K
for a comprehensive discussion of related party
transactions.
(11)
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 significant subsequent events need to
be recognized or disclosed.
|
|
|
|
|
|
|
|
|
|
CITIZENS, INC. |
MANAGEMENT'S DISCUSSION & ANALYSIS |
|
|
|
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This section and other parts of this Quarterly Report on Form 10-Q
("Form 10-Q") contain forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995,
that involve risks and uncertainties. Forward-looking statements
provide current expectations of future events based on certain
assumptions and include any statement that does not directly relate
to any historical or current fact. Forward-looking statements can
also be identified by words such as “future,” “anticipates,”
“believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,”
“will,” “would,” “could,” “can,” “may,” and similar terms.
Forward-looking statements are not guarantees of future performance
and the Company’s actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that
might cause such differences include, but are not limited to,
statements concerning any potential future impact of the
coronavirus disease (“COVID-19”) pandemic on our business, as well
as factors discussed in the "Risk Factors" contained in our Annual
Report on
Form 10-K
for the year ended December 31, 2021, which are incorporated
herein by reference. The Company assumes no obligation to revise or
update any forward-looking statements for any reason, except as
required by law.
The following discussion should be read in conjunction with the
consolidated financial statements and accompanying notes included
in
Part
I, Item 1
of this Form 10-Q. The Company assumes no obligation to revise or
update any forward-looking statements for any reason, except as
required by law.
The U.S. Securities and Exchange Commission ("SEC") maintains a
website that contains reports, proxy and information statements,
and other information regarding issuers, including the Company,
that file electronically with the SEC. The public can obtain any
documents that the Company files with the SEC at
http://www.sec.gov. We also make available, free of charge, through
our Internet website (http://www.citizensinc.com), our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, Section 16 Reports filed by officers and
directors, news releases, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as soon as reasonably
practicable after we electronically file such reports with, or
furnish such reports to, the SEC. We are not including
any of the information contained on our website as part of, or
incorporating it by reference into, this Form 10-Q.
OVERVIEW
For over 45 years, we have been fulfilling the needs of our
policyholders and their families by providing insurance products
that offer both living and death benefits. Citizens conducts
insurance related operations through its insurance subsidiaries,
which provide benefits to residents in 31 U.S. states and more than
70 different countries. We specialize in offering primarily
ordinary 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 and 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 information
in order to assess the material changes in our financial condition
from December 31, 2021 to March 31, 2022 and the material changes
in our results of operations from March 31, 2021 to March 31, 2022.
We also discuss in the MD&A any trends that we believe may
materially affect our future operations or financial
condition.
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CITIZENS, INC. |
MANAGEMENT'S DISCUSSION & ANALYSIS |
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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
•Death
claims and surrenders
•Operating
expenses
As premium revenues and investment income are our two primary
sources of income, both new sales and "resells"
(i.e.
retaining the policy) as well as our investments and the interest
we receive on such investments, are key to our
profitability.
Our premium revenue increased in the first three months of 2022
compared to 2021 as growth in renewal premiums in both segments
more than offset lower first-year premiums in our Life Insurance
segment, which in 2022 decreased by 19.8% compared to 2021. Renewal
premiums increased 2.4% in 2022 as compared to 2021, which we
believe is due to strong first year sales in 2021 and continued
retention and collection efforts.
While interest rates have recently started to increase, our yield
declined 1 basis point to 4.20% in the first three months of 2022
as a substantial portion of our fixed maturity portfolio was called
or matured over the past few years and we faced challenges in
finding comparable yields. Our net investment income increased by
$0.2 million from the 2021 period to the 2022 period due to a
growing asset base and positive returns from our middle market
private equity investment.
As part of the ongoing process of managing our portfolio and
optimizing performance we have been diversifying our investment
portfolio in order to help mitigate the effects of the sustained
low interest rate environment, however, this diversification comes
with some volatility and accordingly, due to the general market
decline in the first quarter of 2022, we incurred investment
related losses of $0.6 million in the current period compared to
gains of $0.3 million in prior year quarter.
Payment of policyholder benefits for death claims and surrenders is
our largest expense and thus also key to our profitability. In the
first quarter of 2022, our death claims decreased. Death claims in
the 2021 period in our Life Insurance segment were negatively
impacted by higher reported claims, including COVID-19 related
deaths and the average dollar amount of claims incurred. Our
surrenders decreased in the first quarter of 2022 compared to
the
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CITIZENS, INC. |
MANAGEMENT'S DISCUSSION & ANALYSIS |
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same period in 2021, which we believe was in large part due to our
retention initiatives.
Operating expenses are our second largest expense and thus drive
our operating results. Our general operating expenses decreased by
$0.4 million in 2022 as compared to 2021.
FINANCIAL HIGHLIGHTS
Financial Condition at March 31, 2022
•Total
investments of $1.5 billion; fixed maturity securities comprised
89.6% of total investments.
•Total
assets of $1.7 billion.
•Total
stockholders' equity of $0.2 billion.
•$4.6
billion of direct insurance in force.
•No
debt.
•Fully
diluted loss per share of Class A common stock of
$0.03.
Our net loss decreased by $2.2 million in the three months ended
March 31, 2022 to $1.3 million compared to $3.6 million in
prior year period. The decrease in our net loss was primarily due
to a decrease in death claims, federal income tax and other general
expenses partially offset by investment losses reflecting changes
in fair value of our equity investments, as discussed in
Part
I, Item 1, Note 5. Investments,
changes in fair values of our equity securities are reflected in
investment gains or losses, in addition to executed transactions
that result in a gain or loss.
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CITIZENS, INC. |
MANAGEMENT'S DISCUSSION & ANALYSIS |
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COVID-19 PANDEMIC
The overall impact of COVID-19 and its related economic conditions
on the Company's financial results continue to be highly uncertain
and unpredictable. While the Company has implemented new strategies
and processes to mitigate this impact, the scope, duration and
magnitude of the direct and indirect effects of COVID-19 are
difficult or impossible to anticipate. As a result, it is not
possible to predict its impact on the Company's results in 2022 or
beyond. While we don't believe that COVID-19 materially impacted
our results of operations for the quarter ended March 31, 2022,
some of the most significant factors related to COVID-19 that could
cause our future results to differ significantly from our prior
results or expectations include:
•a
higher level of claims due to COVID-19 deaths;
•decreased
premium revenue due to disruption to our workforce or distribution
channel resulting from required isolation, travel limitations and
business restrictions;
•higher
surrenders and lapses due to cash needs our policyholders may have
due to concerns over COVID-19 economic impacts; and
•volatility
in our investment portfolio due to market disruptions caused by
COVID-19 related concerns such as inflation.
We continue to monitor the impact of the COVID-19 pandemic on our
operations.
OUR OPERATING SEGMENTS
We manage our business in two operating segments, Life Insurance
and Home Service Insurance.
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 of ordinary life
policies issued during the periods indicated are shown
below.
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Three Months Ended March 31, |
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2022 |
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2021 |
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Amount of
Insurance
Issued |
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Number of
Policies
Issued |
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Average Policy
Face Amount
Issued |
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Amount of
Insurance
Issued |
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Number of
Policies
Issued |
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Average Policy
Face Amount
Issued |
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Life Insurance |
$ |
42,524,454 |
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633 |
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$ |
67,179 |
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$ |
50,330,540 |
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863 |
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$ |
58,320 |
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Home Service Insurance |
54,823,369 |
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5,431 |
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10,095 |
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44,658,259 |
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6,361 |
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7,021 |
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Total |
$ |
97,347,823 |
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6,064 |
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$ |
94,988,799 |
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7,224 |
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Total insurance issued increased by 2.5% in the three months ended
March 31, 2022, from $95.0 million in the first three months
of 2021 to $97.3 million in 2022. The growth was driven by our Home
Service Insurance segment. Total insurance issued in our Home
Service Insurance segment increased by $10.2 million, or 22.8% in
the three months ended March 31, 2022 as compared to the same
period in 2021, despite the decrease in the number of policies
issued. The increase in higher average policy face amounts issued
is attributable to sales campaigns that focused on increasing the
face amount of insurance sold as well as the introduction of our
new whole life product in this segment, which has a higher maximum
face value.
Despite higher average policy face values, total insurance issued
in our Life Insurance segment decreased in the three months ended
March 31, 2022 as compared to the prior year period as the
number of policies issued decreased 26.7%. We continue to
prioritize recruiting new independent consultants.