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,~~September 30, 2021

☐ 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


CITIZENS, INC.
(Exact name of registrant as specified in its charter)


Colorado			84-0755371
(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


Securities registered pursuant to Section 12(b) of the Act

Class A Common Stock	CIA	NYSE
(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:

Large accelerated filer

☐

Accelerated filer

☒

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Emerging growth company~~

☐

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 ~~April 30,~~October 29, 2021, the Registrant had ~~49,603,606~~49,789,339 shares of Class A common stock outstanding and 0 shares of Class B common stock outstanding.

THIS PAGE INTENTIONALLY LEFT BLANK

TABLE OF CONTENTS


			Page Number
Part I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets, ~~March 31,~~September 30, 2021 (Unaudited) and December 31, 2020	2

		Consolidated Statements of Operations and Comprehensive Income (Loss), Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 (Unaudited)	4

		Consolidated Statements of Stockholders' Equity, ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 (Unaudited)	5

		Consolidated Statements of Cash Flows, ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 (Unaudited)	67

		Notes to Consolidated Financial Statements (Unaudited)	89

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2730

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4752

	Item 4.	Controls and Procedures	4752

Part II. OTHER INFORMATION

	Item 1.	Legal Proceedings	4854

	Item 1A.	Risk Factors	4855

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4855

	Item 3.	Defaults Upon Senior Securities	4855

	Item 4.	Mine Safety Disclosures	4855

	Item 5.	Other Information	4855

	Item 6.	Exhibits	4856

~~March 31,~~September 30, 2021 | 10-Q 1

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets

(In thousands) March 31, 2021 December 31, 2020
Assets (Unaudited)
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost: $1,332,632 and $1,321,487 in 2021 and 2020, respectively) $ 1,420,587 1,489,383
Equity securities, at fair value 22,366 22,102
Policy loans 82,674 83,318
Real estate held-for-sale 2,571 2,571
Other long-term investments (portion measured at fair value $16,982 and $11,923 in 2021 and 2020, respectively; less allowance for losses of $11 in 2021 and 2020) 17,347 27,294
Total investments 1,545,545 1,624,668
Cash and cash equivalents 19,493 34,131
Accrued investment income 15,862 16,137
Receivable for securities 2,808 0
Reinsurance recoverable 4,343 5,753
Deferred policy acquisition costs 128,914 104,913
Cost of insurance acquired 11,443 11,541
Goodwill and other intangible assets 13,569 13,570
Property and equipment, net 15,684 16,312
Due premiums 9,538 11,309
Other assets (less allowance for losses of $304 and $297 in 2021 and 2020, respectively) 14,454 5,086
Total assets $ 1,781,653 1,843,420




(In thousands)	September 30, 2021		December 31, 2020
Assets	(Unaudited)
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost: $1,324,307 and $1,321,487 in 2021 and 2020, respectively)	$	1,456,694	1,489,383

Equity securities, at fair value	22,335		22,102

Policy loans	80,102		83,318

Real estate held-for-sale	—		2,571
Other long-term investments (portion measured at fair value $32,651 and $11,923 in 2021 and 2020, respectively; less allowance for losses of $11 in 2021 and 2020)	34,013		27,294

Total investments	1,593,144		1,624,668
Cash and cash equivalents	30,087		34,131
Accrued investment income	15,625		16,137
Receivable for securities	10,000		—
Reinsurance recoverable	13,724		5,753
Deferred policy acquisition costs	115,093		104,913
Cost of insurance acquired	10,865		11,541
Goodwill and other intangible assets	13,567		13,570


Property and equipment, net	14,524		16,312
Due premiums	9,369		11,309

Other assets (less allowance for losses of $223 and $297 in 2021 and 2020, respectively)	5,500		5,086
Total assets	$	1,831,498	1,843,420

See accompanying Notes to Consolidated Financial Statements.

~~March 31,~~September 30, 2021 | 10-Q 2

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets, Continued


(In thousands, except share amounts)	(In thousands, except share amounts)	March 31, 2021		December 31, 2020	(In thousands, except share amounts)	September 30, 2021		December 31, 2020
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity	(Unaudited)			Liabilities and Stockholders' Equity	(Unaudited)
Liabilities:	Liabilities:				Liabilities:
Policy liabilities:	Policy liabilities:				Policy liabilities:
Future policy benefit reserves:	Future policy benefit reserves:				Future policy benefit reserves:
Life insurance	Life insurance	$	1,250,930	1,246,423	Life insurance	$	1,266,745	1,246,423
Annuities	Annuities	81,003		78,304	Annuities	83,223		78,304
Accident and health	Accident and health	785		761	Accident and health	779		761
Dividend accumulations	Dividend accumulations	33,997		33,336	Dividend accumulations	36,588		33,336
Premiums paid in advance	Premiums paid in advance	41,639		40,605	Premiums paid in advance	42,132		40,605
Policy claims payable	Policy claims payable	13,398		13,206	Policy claims payable	23,478		13,206
Other policyholders' funds	Other policyholders' funds	25,088		22,447	Other policyholders' funds	28,064		22,447
Total policy liabilities	Total policy liabilities	1,446,840		1,435,082	Total policy liabilities	1,481,009		1,435,082
Commissions payable	Commissions payable	2,192		2,572	Commissions payable	2,197		2,572
Current federal income tax payable	Current federal income tax payable	45,173		43,916	Current federal income tax payable	45,771		43,916
Deferred federal income tax payable	Deferred federal income tax payable	9,717		9,564	Deferred federal income tax payable	9,162		9,564
Payable for securities in process of settlement	Payable for securities in process of settlement	2,075		5,265	Payable for securities in process of settlement	560		5,265
Other liabilities	Other liabilities	34,816		46,076	Other liabilities	27,768		46,076
Total liabilities	Total liabilities	1,540,813		1,542,475	Total liabilities	1,566,467		1,542,475
Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)	0		0	Commitments and contingencies (Note 7)	0		0
Stockholders' Equity:	Stockholders' Equity:				Stockholders' Equity:
Common stock:	Common stock:				Common stock:
Class A, 0 par value, 100,000,000 shares authorized, 52,694,778 and 52,654,016 shares issued and outstanding in 2021 and 2020, respectively, including shares in treasury of 3,135,738 in 2021 and 2020		262,855		262,869
Class B, 0 par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2021 and 2020		3,184		3,184
Class A, no par value, 100,000,000 shares authorized, 52,765,837 and 52,654,016 shares issued and outstanding in 2021 and 2020, respectively, including shares in treasury of 3,135,738 in 2021 and 2020					Class A, no par value, 100,000,000 shares authorized, 52,765,837 and 52,654,016 shares issued and outstanding in 2021 and 2020, respectively, including shares in treasury of 3,135,738 in 2021 and 2020	263,160		262,869
Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2021 and 2020, including shares in treasury of 1,001,714 in 2021					Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2021 and 2020, including shares in treasury of 1,001,714 in 2021	3,184		3,184
Accumulated deficit	Accumulated deficit	(85,925)		(82,352)	Accumulated deficit	(83,702)		(82,352)
Accumulated other comprehensive income:	Accumulated other comprehensive income:				Accumulated other comprehensive income:
Net unrealized gains (losses) on fixed maturity securities, net of tax	Net unrealized gains (losses) on fixed maturity securities, net of tax	71,737		128,255	Net unrealized gains (losses) on fixed maturity securities, net of tax	102,490		128,255
Treasury stock, at cost	Treasury stock, at cost	(11,011)		(11,011)	Treasury stock, at cost	(20,101)		(11,011)
Total stockholders' equity	Total stockholders' equity	240,840		300,945	Total stockholders' equity	265,031		300,945
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,781,653	1,843,420	Total liabilities and stockholders' equity	$	1,831,498	1,843,420

See accompanying Notes to Consolidated Financial Statements.

~~March 31,~~September 30, 2021 | 10-Q 3

Table of Contents

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) 2021 2020
Revenues:
Premiums:
Life insurance $ 37,642 39,946
Accident and health insurance 343 261
Property insurance 1,047 1,110
Net investment income 15,244 15,169
Realized investment gains (losses), net 292 (1,306)
Other income 915 542
Total revenues 55,483 55,722
Benefits and Expenses:
Insurance benefits paid or provided:
Claims and surrenders 30,589 26,449
Increase in future policy benefit reserves 5,232 9,471
Policyholders' dividends 1,306 1,233
Total insurance benefits paid or provided 37,127 37,153
Commissions 8,157 7,853
Other general expenses 11,382 11,473
Capitalization of deferred policy acquisition costs (4,985) (5,009)
Amortization of deferred policy acquisition costs 6,183 6,119
Amortization of cost of insurance acquired 367 368
Total benefits and expenses 58,231 57,957
Income (loss) before federal income tax (2,748) (2,235)
Federal income tax expense (benefit) 825 1,349
Net income (loss) (3,573) (3,584)
Per Share Amounts:
Basic and diluted earnings (losses) per share of Class A common stock (0.07) (0.07)
Basic and diluted earnings (losses) per share of Class B common stock (0.04) (0.04)
Other Comprehensive Income (Loss):
Unrealized losses on fixed maturity securities:
Unrealized holding losses arising during period (55,898) (42,929)
Reclassification adjustment for losses (gains) included in net income (loss) (35) 132
Unrealized losses on fixed maturity securities, net (55,933) (42,797)
Income tax expense (benefit) on unrealized losses on fixed maturity securities 585 (2,727)
Other comprehensive loss (56,518) (40,070)
Total comprehensive loss $ (60,091) (43,654)


	Three Months Ended September 30,			Nine Months Ended September 30,
(In thousands, except per share amounts)	2021		2020	2021	2020
Revenues:
Premiums:
Life insurance	$	43,239	42,732	122,319	122,863
Accident and health insurance	311		236	945	745
Property insurance	(223)		1,140	1,921	3,313
Net investment income	15,454		14,997	46,018	45,081
Realized investment gains (losses), net	2,126		527	7,277	669
Other income	677		193	2,145	1,217
Total revenues	61,584		59,825	180,625	173,888
Benefits and Expenses:
Insurance benefits paid or provided:
Claims and surrenders	31,816		32,958	91,701	87,161
Increase in future policy benefit reserves	10,888		4,158	22,407	21,866
Policyholders' dividends	1,650		1,450	4,431	4,011
Total insurance benefits paid or provided	44,354		38,566	118,539	113,038
Commissions	9,115		7,712	26,073	22,279
Other general expenses	10,542		19,391	33,427	42,003
Capitalization of deferred policy acquisition costs	(6,026)		(4,892)	(16,798)	(13,632)
Amortization of deferred policy acquisition costs	6,043		6,760	18,300	18,940
Amortization of cost of insurance acquired	283		459	959	1,228
Total benefits and expenses	64,311		67,996	180,500	183,856
Income (loss) before federal income tax	(2,727)		(8,171)	125	(9,968)
Federal income tax expense (benefit)	72		(256)	1,475	2,558
Net income (loss)	(2,799)		(7,915)	(1,350)	(12,526)
Per Share Amounts:
Basic and diluted earnings (losses) per share of Class A common stock	(0.06)		(0.16)	(0.03)	(0.25)
Basic and diluted earnings (losses) per share of Class B common stock	—		(0.07)	(0.01)	(0.12)
Other Comprehensive Income (Loss):
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) arising during period	(1,564)		15,128	(25,706)	52,707
Reclassification adjustment for losses (gains) included in net income (loss)	(102)		2	(91)	46
Unrealized gains (losses) on fixed maturity securities, net	(1,666)		15,130	(25,797)	52,753
Income tax expense (benefit) on unrealized gains (losses) on fixed maturity securities	(271)		1,020	(32)	4,067
Other comprehensive income (loss)	(1,395)		14,110	(25,765)	48,686
Total comprehensive income (loss)	$	(4,194)	6,195	(27,115)	36,160

See accompanying Notes to Consolidated Financial Statements.

~~March 31,~~September 30, 2021 | 10-Q 4

Table of Contents

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, 2020 $ 262,869 3,184 (82,352) 128,255 (11,011) 300,945
Comprehensive income (loss):
Net income (loss) 0 0 (3,573) 0 0 (3,573)
Unrealized investment gains (losses), net 0 0 0 (56,518) 0 (56,518)
Total comprehensive income (loss) 0 0 (3,573) (56,518) 0 (60,091)
Stock-based compensation (14) 0 0 0 0 (14)
Balance at March 31, 2021 $ 262,855 3,184 (85,925) 71,737 (11,011) 240,840




	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, 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
Comprehensive income (loss):
Net income (loss)	—		—	5,022	—	—	5,022
Unrealized investment gains (losses), net	—		—	—	32,148	—	32,148
Total comprehensive income (loss)	—		—	5,022	32,148	—	37,170
Acquisition of treasury stock	—		—	—	—	(9,090)	(9,090)
Stock-based compensation	205		—	—	—	—	205
Balance at June 30, 2021	263,060		3,184	(80,903)	103,885	(20,101)	269,125
Comprehensive income (loss):
Net income (loss)	—		—	(2,799)	—	—	(2,799)
Unrealized investment gains (losses), net	—		—	—	(1,395)	—	(1,395)
Total comprehensive income (loss)	—		—	(2,799)	(1,395)	—	(4,194)
Stock-based compensation	100		—	—	—	—	100
Balance at September 30, 2021	$	263,160	3,184	(83,702)	102,490	(20,101)	265,031

See accompanying Notes to Consolidated Financial Statements.

Balance at December 31, 2019 $ 261,515 3,184 (70,969) 77,117 (11,011) 259,836
Accounting standards adopted January 1, 2020 0 0 (395) 0 0 (395)
Comprehensive income (loss):
Net income (loss) 0 0 (3,584) 0 0 (3,584)
Unrealized investment gains (losses), net 0 0 0 (40,070) 0 (40,070)
Total comprehensive income (loss) 0 0 (3,584) (40,070) 0 (43,654)
Stock-based compensation (53) 0 0 0 0 (53)
Balance at March 31, 2020 $ 261,462 3,184 (74,948) 37,047 (11,011) 215,734
September 30, 2021 | 10-Q 5

Table of Contents




CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity, Continued
(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, 2019	$	261,515	3,184	(70,969)	77,117	(11,011)	259,836
Accounting standards adopted January 1, 2020	—		—	(395)	—	—	(395)
Comprehensive income (loss):
Net income (loss)	—		—	(3,584)	—	—	(3,584)
Unrealized investment gains (losses), net	—		—	—	(40,070)	—	(40,070)
Total comprehensive income (loss)	—		—	(3,584)	(40,070)	—	(43,654)
Stock-based compensation	(53)		—	—	—	—	(53)
Balance at March 31, 2020	261,462		3,184	(74,948)	37,047	(11,011)	215,734
Comprehensive income (loss):
Net income (loss)	—		—	(1,027)	—	—	(1,027)
Unrealized investment gains (losses), net	—		—	—	74,647	—	74,647
Total comprehensive income (loss)	—		—	(1,027)	74,647	—	73,620
Stock-based compensation	439		—	—	—	—	439
Balance at June 30, 2020	261,901		3,184	(75,975)	111,694	(11,011)	289,793
Comprehensive income (loss):
Net income (loss)	—		—	(7,915)	—	—	(7,915)
Unrealized investment gains (losses), net	—		—	—	14,110	—	14,110
Total comprehensive income (loss)	—		—	(7,915)	14,110	—	6,195
Stock-based compensation	766		—	—	—	—	766
Balance at September 30, 2020	$	262,667	3,184	(83,890)	125,804	(11,011)	296,754

See accompanying Notes to Consolidated Financial Statements.

~~March 31,~~September 30, 2021 | 10-Q 56

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


Three Months Ended March 31, (In thousands)		2021		2020
Nine Months Ended September 30, (In thousands)					Nine Months Ended September 30, (In thousands)	2021		2020
Cash flows from operating activities:	Cash flows from operating activities:				Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(3,573)	(3,584)	Net income (loss)	$	(1,350)	(12,526)
Adjustments to reconcile net gain (loss) to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment (gains) losses on sale of investments and other assets	Realized investment (gains) losses on sale of investments and other assets	(292)		1,306	Realized investment (gains) losses on sale of investments and other assets	(7,277)		(669)
Net deferred policy acquisition costs	Net deferred policy acquisition costs	1,198		1,110	Net deferred policy acquisition costs	1,502		5,308
Amortization of cost of insurance acquired	Amortization of cost of insurance acquired	367		368	Amortization of cost of insurance acquired	959		1,228
Depreciation	Depreciation	308		70	Depreciation	954		771
Amortization of premiums and discounts on investments	Amortization of premiums and discounts on investments	1,323		2,393	Amortization of premiums and discounts on investments	4,065		6,616
Stock-based compensation	Stock-based compensation	76		193	Stock-based compensation	406		2,020
Deferred federal income tax expense (benefit)	Deferred federal income tax expense (benefit)	(432)		(280)	Deferred federal income tax expense (benefit)	(370)		(386)
Change in:	Change in:				Change in:
Accrued investment income	Accrued investment income	275		348	Accrued investment income	512		1,133
Reinsurance recoverable	Reinsurance recoverable	1,410		444	Reinsurance recoverable	(7,971)		(8,274)
Due premiums	Due premiums	1,771		1,045	Due premiums	1,940		1,434
Future policy benefit reserves	Future policy benefit reserves	5,185		9,414	Future policy benefit reserves	22,292		21,654
Other policyholders' liabilities	Other policyholders' liabilities	4,528		2,318	Other policyholders' liabilities	20,668		15,364
Federal income tax payable	Federal income tax payable	1,257		1,850	Federal income tax payable	1,855		3,165
Commissions payable and other liabilities	Commissions payable and other liabilities	(11,317)		(2,865)	Commissions payable and other liabilities	(14,342)		145
Other, net	Other, net	(275)		(37)	Other, net	(73)		(2,967)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	1,809		14,093	Net cash provided by (used in) operating activities	23,770		34,016
Cash flows from investing activities:	Cash flows from investing activities:				Cash flows from investing activities:
Purchases of fixed maturity securities, available-for-sale	Purchases of fixed maturity securities, available-for-sale	(37,294)		(65,714)	Purchases of fixed maturity securities, available-for-sale	(62,809)		(187,267)
Sales of fixed maturity securities, available-for-sale	Sales of fixed maturity securities, available-for-sale	4,445		940	Sales of fixed maturity securities, available-for-sale	8,238		17,524
Maturities and calls of fixed maturity securities, available-for-sale	Maturities and calls of fixed maturity securities, available-for-sale	14,376		44,612	Maturities and calls of fixed maturity securities, available-for-sale	40,395		154,873
Purchases of equity securities	Purchases of equity securities	0		(4,473)	Purchases of equity securities	—		(4,473)
Principal payments on mortgage loans	Principal payments on mortgage loans	4		4	Principal payments on mortgage loans	7		9
Funding of mortgage loans					Funding of mortgage loans	(1,000)		—
(Increase) decrease in policy loans, net	(Increase) decrease in policy loans, net	644		676	(Increase) decrease in policy loans, net	3,216		(1,957)
Sales of other long-term investments and real estate	Sales of other long-term investments and real estate	15,089		0	Sales of other long-term investments and real estate	20,893		—
Purchases of other long-term investments	Purchases of other long-term investments	(4,619)		(2,810)	Purchases of other long-term investments	(27,514)		(19,115)

Sales of property and equipment					Sales of property and equipment	14		—
Purchases of property and equipment	Purchases of property and equipment	(15)		(5)	Purchases of property and equipment	(847)		(124)
Maturities of short-term investments	Maturities of short-term investments	0		650	Maturities of short-term investments	—		1,300
Purchases of short-term investments		0		(45)

Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(7,370)		(26,165)	Net cash provided by (used in) investing activities	(19,407)		(39,230)

See accompanying Notes to Consolidated Financial Statements.	See accompanying Notes to Consolidated Financial Statements.				See accompanying Notes to Consolidated Financial Statements.

~~March 31,~~September 30, 2021 | 10-Q 67

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES	CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES				CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued	Consolidated Statements of Cash Flows, Continued				Consolidated Statements of Cash Flows, Continued
(Unaudited)	(Unaudited)				(Unaudited)

Three Months Ended March 31, (In thousands)		2021		2020
Nine Months Ended September 30, (In thousands)					Nine Months Ended September 30, (In thousands)	2021		2020
Cash flows from financing activities:	Cash flows from financing activities:				Cash flows from financing activities:
Annuity deposits	Annuity deposits	$	2,431	1,618	Annuity deposits	$	6,901	5,542
Annuity withdrawals	Annuity withdrawals	(2,329)		(561)	Annuity withdrawals	(5,855)		(3,403)
Purchase of treasury stock		(9,090)		0
Acquisition of treasury stock					Acquisition of treasury stock	(9,090)		—
Other	Other	(89)		(246)	Other	(363)		(869)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(9,077)		811	Net cash provided by (used in) financing activities	(8,407)		1,270
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	(14,638)		(11,261)	Net increase (decrease) in cash and cash equivalents	(4,044)		(3,944)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	34,131		46,205	Cash and cash equivalents at beginning of year	34,131		46,205
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	19,493	34,944	Cash and cash equivalents at end of period	$	30,087	42,261

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, various fixed maturity issuers exchanged securities with book values of ~~$2.0~~$10.9 million and ~~$3.1~~$5.3 million, respectively, for securities of equal value.

The Company ~~accrued purchases of property~~had $9.4 million net unsettled security trades at September 30, 2021 and ~~equipment of $0.8~~$6.0 million ~~as of March 31, 2021, which is reflected in other liabilities on the consolidated Balance Sheets and recorded NaN as of March 31,~~at September 30, 2020.

The Company ~~had $0.7~~recognized right-of-use assets of $12.0 million ~~net unsettled security trades at March 31, 2021 and $3.4 million at March 31,~~in exchange for new operating lease liabilities during the nine months ended September 30, 2020. None were recognized during the nine months ended September 30, 2021.

See accompanying Notes to Consolidated Financial Statements.

~~March 31,~~September 30, 2021 | 10-Q 78

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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 Ltd."), 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 ~~interactions~~transactions have been eliminated. Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company", "we", "us" or "our".

The consolidated balance sheets as of ~~March 31,~~September 30, 2021, ~~and~~ the consolidated statements of operations and comprehensive income (loss), and stockholders' equity for the three and nine months ended September 30, 2021 and September 30, 2020 and the consolidated statements of cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020 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,~~September 30, 2021 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, 2020 ("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 Ltd., CICA and CNLIC. Our international life insurance business, which operates through CICA Ltd., 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, which operates through CICA and CNLIC, primarily focused on living needs and provided benefits toward accumulating financial benefits for the policyowners throughout the Midwest and southern U.S. until they ceased most domestic sales beginning January 1, 2017. We have recently developed a whole life insurance product and have begun selling this product in Florida in 2021.

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 ~~limited liability,~~property insurance policies, which are named peril property policies covering dwelling and contents.

CTI provides data processing systems and services to the Company.

We converted the small block of ordinary whole life policies of CNLIC from a legacy platform to our new actuarial valuation software solution which provides enhanced modeling capabilities as of April 1, 2021. The impact of this system conversion reflected in the accompanying consolidated financial statements as of and for the nine months ended September 30, 2021 was an increase to pretax income of $0.7 million consisting of a reduced increase in future policy benefit reserves of $0.8 million and increased amortization of deferred policy acquisition costs of $0.1 million.

September 30, 2021 | 10-Q 9

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

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.

~~March 31, 2021 | 10-Q 8~~

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~~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, tests of goodwill impairment 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 RECENTLY ADOPTED

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326), with the main objective to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases of expected credit losses that have taken place during the period. Credit losses on available-for-sale ("AFS") fixed maturity securities should be measured in a manner similar to current U.S. GAAP; however, the credit losses are recorded through an allowance for credit losses rather than as a write-down. This approach is an improvement to prior U.S. GAAP because an entity will be able to record reversals of credit losses (in situations in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement recognition of credit losses with the reporting period in which changes occur. Prior U.S. GAAP prohibited reflecting those improvements in current-period earnings. The Company adopted this standard effective January 1, 2020 using the modified retrospective approach. The adoption resulted in an increase in accumulated deficit of $0.4 million related to agents' debit balance collectability.

September 30, 2021 | 10-Q 10

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

ACCOUNTING STANDARDS NOT YET ADOPTED

In August 2018, the FASB issued 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

~~March 31, 2021 | 10-Q 9~~

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~~CITIZENS, INC~~.	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
		~~(Unaudited~~)

•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. ~~The Company~~While it is ~~evaluating~~not possible to estimate the expected impact of adoption at this ~~new guidance, and it~~time, the Company believes there is ~~expected to have~~a reasonable possibility that implementation of ASU No. 2018-12 may result in a material impact on our consolidated ~~financial statements.~~statements of stockholders' equity and future earnings patterns.

No other new accounting pronouncement issued or effective during the year had, or is expected to have, a material impact on our consolidated financial statements.

(3) SEGMENT INFORMATION

The Company has 2 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 Ltd. 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 and CNLIC issued ordinary ~~whole-life,~~whole life, credit life and disability and accident and health related policies, throughout the Midwest and southern U.S. until they ceased most domestic sales beginning January 1, 2017. We restarted ~~domestic sales~~marketing domestically in Florida in 2021.

Our ~~domestic~~ 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. To a lesser extent, our Home Service Insurance segment also sells ~~limited liability, named peril~~ property insurance policies ~~covering dwelling and contents.~~in Louisiana.

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. 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 before federal income taxes for its 2 reportable segments.

~~March 31, 2021 | 10-Q 10~~

~~Table of Contents~~


~~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 0 39,032
Net investment income 11,598 3,345 301 15,244
Realized investment gains (losses), net (108) 223 177 292
Other income 913 2 0 915
Total revenues 39,466 15,539 478 55,483
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 23,270 7,319 0 30,589
Increase in future policy benefit reserves 3,658 1,574 0 5,232
Policyholders' dividends 1,296 10 0 1,306
Total insurance benefits paid or provided 28,224 8,903 0 37,127
Commissions 4,231 3,926 0 8,157
Other general expenses 5,226 3,794 2,362 11,382
Capitalization of deferred policy acquisition costs (3,561) (1,424) 0 (4,985)
Amortization of deferred policy acquisition costs 5,348 835 0 6,183
Amortization of cost of insurance acquired 104 263 0 367
Total benefits and expenses 39,572 16,297 2,362 58,231
Loss before federal income tax expense $ (106) (758) (1,884) (2,748)

~~March 31,~~September 30, 2021 | 10-Q 11

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated
Three Months Ended March 31, 2020
(In thousands)
Revenues:
Premiums $ 29,819 11,498 0 41,317
Net investment income 11,480 3,332 357 15,169
Realized investment gains (losses), net 735 (1,717) (324) (1,306)
Other income 524 18 0 542
Total revenues 42,558 13,131 33 55,722
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 20,160 6,289 0 26,449
Increase in future policy benefit reserves 8,146 1,325 0 9,471
Policyholders' dividends 1,225 8 0 1,233
Total insurance benefits paid or provided 29,531 7,622 0 37,153
Commissions 4,478 3,375 0 7,853
Other general expenses 4,948 4,316 2,209 11,473
Capitalization of deferred policy acquisition costs (3,921) (1,088) 0 (5,009)
Amortization of deferred policy acquisition costs 5,318 801 0 6,119
Amortization of cost of insurance acquired 118 250 0 368
Total benefits and expenses 40,472 15,276 2,209 57,957
Income (loss) before federal income tax expense $ 2,086 (2,145) (2,176) (2,235)
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 before federal income taxes for its 2 reportable segments.


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Three Months Ended September 30, 2021
(In thousands)

Revenues:
Premiums	$	32,198	11,129	—	43,327
Net investment income	11,991		3,238	225	15,454
Realized investment gains (losses), net	1,205		(36)	957	2,126
Other income	676		1	—	677
Total revenues	46,070		14,332	1,182	61,584
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	22,565		9,251	—	31,816
Increase in future policy benefit reserves	9,369		1,519	—	10,888
Policyholders' dividends	1,638		12	—	1,650
Total insurance benefits paid or provided	33,572		10,782	—	44,354
Commissions	4,854		4,261	—	9,115
Other general expenses	4,900		4,146	1,496	10,542
Capitalization of deferred policy acquisition costs	(4,201)		(1,825)	—	(6,026)
Amortization of deferred policy acquisition costs	5,191		852	—	6,043
Amortization of cost of insurance acquired	68		215	—	283
Total benefits and expenses	44,384		18,431	1,496	64,311
Income (loss) before federal income tax expense	$	1,686	(4,099)	(314)	(2,727)

~~March 31,~~September 30, 2021 | 10-Q 12

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Nine Months Ended September 30, 2021
(In thousands)

Revenues:
Premiums	$	89,399	35,786	—	125,185
Net investment income	35,468		9,826	724	46,018
Realized investment gains (losses), net	5,741		393	1,143	7,277
Other income	2,142		3	—	2,145
Total revenues	132,750		46,008	1,867	180,625
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	69,366		22,335	—	91,701
Increase in future policy benefit reserves	17,081		5,326	—	22,407
Policyholders' dividends	4,400		31	—	4,431
Total insurance benefits paid or provided	90,847		27,692	—	118,539
Commissions	13,483		12,590	—	26,073
Other general expenses	15,273		12,024	6,130	33,427
Capitalization of deferred policy acquisition costs	(11,578)		(5,220)	—	(16,798)
Amortization of deferred policy acquisition costs	15,739		2,561	—	18,300
Amortization of cost of insurance acquired	279		680	—	959
Total benefits and expenses	124,043		50,327	6,130	180,500
Income (loss) before federal income tax expense	$	8,707	(4,319)	(4,263)	125

September 30, 2021 | 10-Q 13

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Three Months Ended September 30, 2020
(In thousands)

Revenues:
Premiums	$	32,265	11,843	—	44,108
Net investment income	11,507		3,200	290	14,997
Realized investment gains (losses), net	133		388	6	527
Other income	189		1	3	193
Total revenues	44,094		15,432	299	59,825
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	25,023		7,935	—	32,958
Increase in future policy benefit reserves	3,274		884	—	4,158
Policyholders' dividends	1,443		7	—	1,450
Total insurance benefits paid or provided	29,740		8,826	—	38,566
Commissions	4,140		3,572	—	7,712
Other general expenses	1,915		4,524	12,952	19,391
Capitalization of deferred policy acquisition costs	(3,512)		(1,380)	—	(4,892)
Amortization of deferred policy acquisition costs	6,190		570	—	6,760
Amortization of cost of insurance acquired	113		346	—	459
Total benefits and expenses	38,586		16,458	12,952	67,996
Income (loss) before federal income tax expense	$	5,508	(1,026)	(12,653)	(8,171)

September 30, 2021 | 10-Q 14

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Nine Months Ended September 30, 2020
(In thousands)

Revenues:
Premiums	$	92,146	34,775	—	126,921
Net investment income	34,332		9,788	961	45,081
Realized investment gains (losses), net	1,259		(405)	(185)	669
Other income	1,195		19	3	1,217
Total revenues	128,932		44,177	779	173,888
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	66,071		21,090	—	87,161
Increase in future policy benefit reserves	18,804		3,062	—	21,866
Policyholders' dividends	3,987		24	—	4,011
Total insurance benefits paid or provided	88,862		24,176	—	113,038
Commissions	11,912		10,367	—	22,279
Other general expenses	11,309		13,431	17,263	42,003
Capitalization of deferred policy acquisition costs	(10,149)		(3,483)	—	(13,632)
Amortization of deferred policy acquisition costs	16,927		2,013	—	18,940
Amortization of cost of insurance acquired	358		870	—	1,228
Total benefits and expenses	119,219		47,374	17,263	183,856
Income (loss) before federal income tax expense	$	9,713	(3,197)	(16,484)	(9,968)

September 30, 2021 | 10-Q 15

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

(4) STOCKHOLDERS' EQUITY AND RESTRICTIONS

EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted earnings (loss) per share.



Three Months Ended September 30,	2021		2020
(In thousands, except per share amounts)

Basic and diluted earnings (loss) per share:
Numerator:
Net income (loss)	$	(2,799)	(7,915)
Net income (loss) allocated to Class A common stock	$	(2,799)	(7,836)
Net income (loss) allocated to Class B common stock	—		(79)
Net income (loss)	$	(2,799)	(7,915)

Denominator:
Weighted average shares of Class A outstanding - basic	49,630		49,437
Weighted average shares of Class A outstanding - diluted	50,263		49,832
Weighted average shares of Class B outstanding - basic and diluted	—		1,002
Basic and diluted earnings (loss) per share of Class A common stock	$	(0.06)	(0.16)
Basic and diluted earnings (loss) per share of Class B common stock	—		(0.07)


Three Months Ended March 31,		2021				2020
Nine Months Ended September 30,				Nine Months Ended September 30,	2021				2020
(In thousands, except per share amounts)	(In thousands, except per share amounts)			2021				2020		(In thousands, except per share amounts)
Basic and diluted earnings (loss) per share:	Basic and diluted earnings (loss) per share:					Basic and diluted earnings (loss) per share:
Numerator:	Numerator:						Numerator:
Net income (loss)	Net income (loss)	$	(3,573)			(3,584)	Net income (loss)	$	(1,350)		(12,526)
Net income (loss) allocated to Class A common stock	Net income (loss) allocated to Class A common stock	$	(3,537)			(3,548)	Net income (loss) allocated to Class A common stock	$	(1,345)		(12,401)
Net income (loss) allocated to Class B common stock	Net income (loss) allocated to Class B common stock	(36)				(36)	Net income (loss) allocated to Class B common stock	(5)			(125)
Net income (loss)	Net income (loss)	$	(3,573)			(3,584)	Net income (loss)	$	(1,350)		(12,526)

Denominator:	Denominator:						Denominator:
Weighted average shares of Class A outstanding - basic	Weighted average shares of Class A outstanding - basic	49,549				49,305	Weighted average shares of Class A outstanding - basic	49,594			49,365
Weighted average shares of Class A outstanding - diluted	Weighted average shares of Class A outstanding - diluted	50,116				49,455	Weighted average shares of Class A outstanding - diluted	50,226			49,760
Weighted average shares of Class B outstanding - basic and diluted	Weighted average shares of Class B outstanding - basic and diluted	1,002				1,002	Weighted average shares of Class B outstanding - basic and diluted	401			1,002
Basic and diluted earnings (loss) per share of Class A common stock	Basic and diluted earnings (loss) per share of Class A common stock	$	(0.07)			(0.07)	Basic and diluted earnings (loss) per share of Class A common stock	$	(0.03)		(0.25)
Basic and diluted earnings (loss) per share of Class B common stock	Basic and diluted earnings (loss) per share of Class B common stock	(0.04)				(0.04)	Basic and diluted earnings (loss) per share of Class B common stock	(0.01)			(0.12)

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,~~September 30, 2021.

September 30, 2021 | 10-Q 16

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

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,~~September 30, 2021, CICA Ltd. was above the TCL threshold. At the request of the BMA, on April 15, 2021, Citizens and CICA Ltd. entered into a Keep Well Agreement. The Keep Well Agreement requires Citizens to contribute up to $10 million in capital to CICA Ltd. as necessary to ensure that CICA Ltd. has a minimum capital level of 120% (equal to the TCL). Since CICA Ltd.’s capital level currently exceeds 120%, Citizens is not currently required to make a capital contribution.

~~March 31, 2021 | 10-Q 13~~

~~Table of Contents~~


~~CITIZENS, INC~~.	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
		~~(Unaudited~~)

(5) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled ~~90.8%~~89.7% of total cash and invested assets at ~~March 31,~~September 30, 2021, as shown below.


Carrying Value (In thousands, except for %)	Carrying Value (In thousands, except for %)	March 31, 2021				December 31, 2020			Carrying Value (In thousands, except for %)	September 30, 2021				December 31, 2020
		Amount		%		Amount	%			Amount		%		Amount	%

Cash and invested assets:	Cash and invested assets:								Cash and invested assets:
Fixed maturity securities	Fixed maturity securities	$	1,420,587	90.8	%	1,489,383	89.8	%	Fixed maturity securities	$	1,456,694	89.7	%	1,489,383	89.8	%
Equity securities	Equity securities	22,366		1.4	%	22,102	1.3	%	Equity securities	22,335		1.4	%	22,102	1.3	%
Policy loans	Policy loans	82,674		5.3	%	83,318	5.0	%	Policy loans	80,102		4.9	%	83,318	5.0	%
Real estate and other long-term investments	Real estate and other long-term investments	19,918		1.3	%	29,865	1.8	%	Real estate and other long-term investments	34,013		2.1	%	29,865	1.8	%

Cash and cash equivalents	Cash and cash equivalents	19,493		1.2	%	34,131	2.1	%	Cash and cash equivalents	30,087		1.9	%	34,131	2.1	%

Total cash and invested assets	Total cash and invested assets	$	1,565,038	100.0	%	1,658,799	100.0	%	Total cash and invested assets	$	1,623,231	100.0	%	1,658,799	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		Amortized Cost				Gross Unrealized Gains			Gross Unrealized Losses		Fair Value
March 31, 2021
September 30, 2021						September 30, 2021
(In thousands)	(In thousands)			Amortized Cost				Gross Unrealized Gains					Gross Unrealized Losses				Fair Value	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses	Fair Value

Fixed maturity securities:	Fixed maturity securities:					Fixed maturity securities:
Available-for-sale:	Available-for-sale:																Available-for-sale:
U.S. Treasury securities	U.S. Treasury securities	$	9,508			1,513			0			11,021		U.S. Treasury securities	$	7,257		1,078		—		8,335
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	3,483			1,034		0		4,517	U.S. Government-sponsored enterprises	3,470				1,045			—		4,515
States and political subdivisions	States and political subdivisions	370,995			24,819		1,955		393,859	States and political subdivisions	353,653				29,186			517		382,322
Corporate:	Corporate:									Corporate:
Financial	Financial	207,547			15,269		1,621		221,195	Financial	203,997				22,774			120		226,651
Consumer	Consumer	204,988			16,745		3,034		218,699	Consumer	212,805				23,842			787		235,860
Energy	Energy	79,422			4,904		1,092		83,234	Energy	79,442				8,147			89		87,500
All Other		294,528			21,395		4,261		311,662
All other										All other	300,594				31,884			1,147		331,331

Residential mortgage-backed	Residential mortgage-backed	118,186			14,006		46		132,146	Residential mortgage-backed	117,845				16,681			4		134,522
Asset-backed	Asset-backed	43,874			327		63		44,138	Asset-backed	45,143				413			10		45,546
Foreign governments	Foreign governments	101			15		0		116	Foreign governments	101				11			—		112
Total fixed maturity securities	Total fixed maturity securities	$	1,332,632		100,027		12,072		1,420,587	Total fixed maturity securities	$	1,324,307			135,061			2,674		1,456,694

~~March 31,~~September 30, 2021 | 10-Q 1417

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


		Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value		Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2020	December 31, 2020					December 31, 2020
(In thousands)	(In thousands)					(In thousands)

Fixed maturity securities:	Fixed maturity securities:											Fixed maturity securities:
Available-for-sale:	Available-for-sale:											Available-for-sale:
U.S. Treasury securities	U.S. Treasury securities	$	9,529	1,797	0		11,326	U.S. Treasury securities		$	9,529		1,797		—		11,326
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	3,490		1,301	0		4,791	U.S. Government-sponsored enterprises		3,490			1,301		—		4,791
States and political subdivisions	States and political subdivisions	377,462		32,751	548		409,665	States and political subdivisions	377,462			32,751		548		409,665
Corporate:	Corporate:							Corporate:
Financial	Financial	204,160		31,000	13		235,147	Financial	204,160			31,000		13		235,147
Consumer	Consumer	196,648		30,116	245		226,519	Consumer	196,648			30,116		245		226,519
Energy	Energy	81,223		8,174	536		88,861	Energy	81,223			8,174		536		88,861
All Other		284,209		42,554	82		326,681
All other								All other	284,209			42,554		82		326,681
Commercial mortgage-backed	Commercial mortgage-backed	225		0	4		221	Commercial mortgage-backed	225			—		4		221
Residential mortgage-backed	Residential mortgage-backed	118,144		21,819	0		139,963	Residential mortgage-backed	118,144			21,819		—		139,963
Asset-backed	Asset-backed	46,295		278	482		46,091	Asset-backed	46,295			278		482		46,091
Foreign governments	Foreign governments	102		16	0		118	Foreign governments	102			16		—		118
Total fixed maturity securities	Total fixed maturity securities	$	1,321,487	169,806	1,910		1,489,383	Total fixed maturity securities	$	1,321,487		169,806		1,910		1,489,383

Most of the Company's equity securities are diversified stock and bond mutual funds.

Fair Value
(In thousands)
March 31, 2021 December 31, 2020
Equity securities:
Stock mutual funds $ 3,386 3,174
Bond mutual funds 12,452 12,354
Common stock 1,190 1,143
Non-redeemable preferred stock 276 281
Non-redeemable preferred stock fund 5,062 5,150
Total equity securities $ 22,366 22,102


Fair Value (In thousands)	September 30, 2021		December 31, 2020

Equity securities:
Stock mutual funds	$	3,407	3,174
Bond mutual funds	12,512		12,354
Common stock	1,072		1,143
Non-redeemable preferred stock	272		281
Non-redeemable preferred stock fund	5,072		5,150
Total equity securities	$	22,335	22,102

VALUATION OF INVESTMENTS

Available-for-sale 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 realized losses of $0.4 million and net realized gains of ~~$0.3~~$0.2 million on equity securities held for the three and nine months ended ~~March 31,~~September 30, 2021 and ~~losses~~gains of ~~$1.1~~$0.4 million and $0.6 million for the same ~~period~~periods ended ~~March 31,~~September 30, 2020.

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 and nine months ended ~~March 31,~~September 30, 2021 and 2020, the Company recorded 0no credit valuation losses on fixed maturity securities.

~~March 31,~~September 30, 2021 | 10-Q 1518

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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,~~September 30, 2021 and December 31, 2020.


March 31, 2021		Less than 12 months				Greater than 12 months				Total
September 30, 2021														September 30, 2021	Less than 12 months				Greater than 12 months				Total
(In thousands, except for # of securities)	(In thousands, except for # of securities)	Fair Value		Unrealized Losses	# of Securities	Fair Value		Unrealized Losses	# of Securities	Fair Value		Unrealized Losses	# of Securities	(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:	Fixed maturity securities:													Fixed maturity securities:
Available-for-sale securities:	Available-for-sale securities:													Available-for-sale securities:

U.S. Treasury securities														U.S. Treasury securities	$	72	—	2	$	—	—	—	$	72	—	2
States and political subdivisions	States and political subdivisions	$	49,464	1,955	48	$	0	0	0	$	49,464	1,955	48	States and political subdivisions	22,636		517	17	—		—	—	22,636		517	17
Corporate:	Corporate:													Corporate:
Financial	Financial	35,670		1,621	40	0		0	0	35,670		1,621	40	Financial	3,264		24	7	1,219		96	1	4,483		120	8
Consumer	Consumer	51,477		3,034	49	0		0	0	51,477		3,034	49	Consumer	26,204		651	28	2,410		136	1	28,614		787	29
Energy	Energy	14,151		593	14	2,557		499	6	16,708		1,092	20	Energy	6,778		89	8	—		—	—	6,778		89	8
All Other	All Other	74,922		4,261	96	0		0	0	74,922		4,261	96	All Other	32,946		1,147	29	—		—	—	32,946		1,147	29

Residential mortgage-backed	Residential mortgage-backed	1,595		46	9	0		0	0	1,595		46	9	Residential mortgage-backed	1,009		4	5	—		—	—	1,009		4	5
Asset-backed	Asset-backed	6,434		48	11	9,253		15	8	15,687		63	19	Asset-backed	9,215		9	14	664		1	1	9,879		10	15

Total fixed maturity securities	Total fixed maturity securities	$	233,713	11,558	267	$	11,810	514	14	$	245,523	12,072	281	Total fixed maturity securities	$	102,124	2,441	110	$	4,293	233	3	$	106,417	2,674	113


December 31, 2020	December 31, 2020	Less than 12 months				Greater than 12 months				Total				December 31, 2020	Less than 12 months				Greater than 12 months				Total
(In thousands, except for # of securities)	(In thousands, except for # of securities)	Fair Value		Unrealized Losses	# of Securities	Fair Value		Unrealized Losses	# of Securities	Fair Value		Unrealized Losses	# of Securities	(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:	Fixed maturity securities:													Fixed maturity securities:
Available-for-sale securities:	Available-for-sale securities:													Available-for-sale securities:

States and political subdivisions	States and political subdivisions	$	32,487	548	27	$	0	0	0	$	32,487	548	27	States and political subdivisions	$	32,487	548	27	$	—	—	—	$	32,487	548	27
Corporate:	Corporate:													Corporate:
Financial	Financial	1,308		13	1	0		0	0	1,308		13	1	Financial	1,308		13	1	—		—	—	1,308		13	1
Consumer	Consumer	10,740		230	5	1,667		15	1	12,407		245	6	Consumer	10,740		230	5	1,667		15	1	12,407		245	6
Energy	Energy	6,350		536	8	0		0	0	6,350		536	8	Energy	6,350		536	8	—		—	—	6,350		536	8
All Other	All Other	9,418		82	11	0		0	0	9,418		82	11	All Other	9,418		82	11	—		—	—	9,418		82	11
Commercial mortgage-backed	Commercial mortgage-backed	221		4	1	0		0	0	221		4	1	Commercial mortgage-backed	221		4	1	—		—	—	221		4	1
Residential mortgage-backed	Residential mortgage-backed	83		0	1	0		0	0	83		0	1	Residential mortgage-backed	83		—	1	—		—	—	83		—	1
Asset-backed	Asset-backed	26,353		481	26	994		1	1	27,347		482	27	Asset-backed	26,353		481	26	994		1	1	27,347		482	27
Total fixed maturity securities	Total fixed maturity securities	$	86,960	1,894	80	$	2,661	16	2	$	89,621	1,910	82	Total fixed maturity securities	$	86,960	1,894	80	$	2,661	16	2	$	89,621	1,910	82

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.

We did not recognize credit losses on securities with unrealized losses that were due to interest rate sensitivity and changes in credit spreads. We believe that fluctuations caused by movements in interest rates and credit spreads ~~have little bearing on the recoverability of our investments. The fair value is expected to recover as the securities approach maturity.~~

~~March 31,~~September 30, 2021 | 10-Q 1619

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

have little bearing on the recoverability of our investments. The fair value is expected to recover as the securities approach maturity.

The amortized cost and fair value of fixed maturity securities at ~~March 31,~~September 30, 2021 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, 2021		Amortized Cost				Fair Value
September 30, 2021				September 30, 2021	Amortized Cost				Fair Value
(In thousands)	(In thousands)			Amortized Cost				Fair Value		(In thousands)
Fixed maturity securities:	Fixed maturity securities:					Fixed maturity securities:
Due in one year or less	Due in one year or less	$	25,079			25,438	Due in one year or less	$	31,502		32,097
Due after one year through five years	Due after one year through five years	114,900				125,058	Due after one year through five years	120,606			130,861
Due after five years through ten years	Due after five years through ten years	214,052				231,241	Due after five years through ten years	199,687			218,519
Due after ten years	Due after ten years	978,601				1,038,850	Due after ten years	972,512			1,075,217
Total fixed maturity securities	Total fixed maturity securities	$	1,332,632			1,420,587	Total fixed maturity securities	$	1,324,307		1,456,694

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					Three Months Ended		Nine Months Ended
Fixed Maturity Securities, Available-for-Sale	Fixed Maturity Securities, Available-for-Sale	March 31,				Fixed Maturity Securities, Available-for-Sale	September 30,		September 30,
(In thousands)	(In thousands)		2021		2020			(In thousands)	2021		2020	2021	2020

Proceeds	Proceeds		$	7,254	940			Proceeds	$	984	11,221	8,238	17,524
Gross realized gains	Gross realized gains		$	100	0			Gross realized gains	$	89	25	189	148
Gross realized losses	Gross realized losses		$	1	38			Gross realized losses	$	—	77	1	134

The Company sold 1810 and 128 AFS fixed maturity securities during the three and nine months ended ~~March 31,~~September 30, 2021 and ~~2020, respectively. NaN equity securities were sold~~18 and 24 during the three and nine months ended ~~March 31,~~September 30, 2020, respectively.

The Company sold its former training facility near Austin, Texas during the third quarter 2021 for a gross sale price of $3.8 million, resulting in a gain on the sale of $1.0 million. The facility was owned by Citizens and ~~2020.~~was held in Other Non-Insurance Enterprises.

(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 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

September 30, 2021 | 10-Q 20

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

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.

~~March 31, 2021 | 10-Q 17~~

~~Table of Contents~~


~~CITIZENS, INC~~.	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
		~~(Unaudited~~)

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. Real estate held-for-sale is 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, 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 $ 11,021 4,517 0 15,538
States and political subdivisions 0 393,859 0 393,859
Corporate 52 834,738 0 834,790
Residential mortgage-backed 0 132,146 0 132,146
Asset-backed 0 44,138 0 44,138
Foreign governments 0 116 0 116
Total fixed maturity securities available-for-sale 11,073 1,409,514 0 1,420,587
Equity securities
Stock mutual funds 3,386 0 0 3,386
Bond mutual funds 12,452 0 0 12,452
Common stock 1,190 0 0 1,190
Non-redeemable preferred stock 276 0 0 276
Non-redeemable preferred stock fund 5,062 0 0 5,062
Total equity securities 22,366 0 0 22,366
Other long-term investments (1)
0 0 0 16,982
Total financial assets $ 33,439 1,409,514 0 1,459,935

~~(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 are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet.

~~March 31,~~September 30, 2021 | 10-Q 1821

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

December 31, 2020 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 $ 11,326 4,791 0 16,117
States and political subdivisions 0 409,665 0 409,665
Corporate 52 877,156 0 877,208
Commercial mortgage-backed 0 221 0 221
Residential mortgage-backed 0 139,963 0 139,963
Asset-backed 0 46,091 0 46,091
Foreign governments 0 118 0 118
Total fixed maturity securities available-for-sale 11,378 1,478,005 0 1,489,383
Equity securities
Stock mutual funds 3,174 0 0 3,174
Bond mutual funds 12,354 0 0 12,354
Common stock 1,143 0 0 1,143
Non-redeemable preferred stock 281 0 0 281
Non-redeemable preferred stock fund 5,150 0 0 5,150
Total equity securities 22,102 0 0 22,102
Other long-term investments (1)
0 0 0 11,923
Total financial assets $ 33,480 1,478,005 0 1,523,408
(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 are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet.

~~FINANCIAL INSTRUMENTS VALUATION~~The following tables set forth our assets that are measured at fair value on a recurring basis as of the dates indicated.

~~FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE~~


September 30, 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	$	8,335	4,515	—	12,850
States and political subdivisions	—		382,322	—	382,322
Corporate	51		881,291	—	881,342

Residential mortgage-backed	—		134,522	—	134,522
Asset-backed	—		45,546	—	45,546
Foreign governments	—		112	—	112
Total fixed maturity securities available-for-sale	8,386		1,448,308	—	1,456,694

Equity securities
Stock mutual funds	3,407		—	—	3,407
Bond mutual funds	12,512		—	—	12,512
Common stock	1,072		—	—	1,072
Non-redeemable preferred stock	272		—	—	272
Non-redeemable preferred stock fund	5,072		—	—	5,072
Total equity securities	22,335		—	—	22,335
Other long-term investments (1)	—		—	—	32,651
Total financial assets	$	30,721	1,448,308	—	1,511,680

~~Fixed maturity securities, available-for-sale.~~(1) ~~At March 31, 2021, our fixed maturity securities, valued using a third-party pricing source, totaled $1.4 billion for Level 2 assets and comprised 96.5% of total reported~~In accordance with Subtopic 820-10, certain investments that are measured at 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 0 Level 3 assets at March 31, 2021. For the three months ended March 31, 2021, there were no material changes to the valuation methods or assumptions used to determine fair values, and 0 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.~~

~~Private equity funds.~~ ~~The Company considers~~using the net asset value ~~("NAV")~~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 ~~represent the value~~permit reconciliation of the ~~investment fund and is measured by~~fair value hierarchy to the ~~total value of assets minus~~amounts presented in the ~~total value of liabilities. The following tables include information related to our investments in private equity funds that calculate NAV per share. For these investments,~~consolidated balance sheet.

~~March 31,~~September 30, 2021 | 10-Q 1922

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


December 31, 2020	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	$	11,326	4,791	—	16,117
States and political subdivisions	—		409,665	—	409,665
Corporate	52		877,156	—	877,208
Commercial mortgage-backed	—		221	—	221
Residential mortgage-backed	—		139,963	—	139,963
Asset-backed	—		46,091	—	46,091
Foreign governments	—		118	—	118
Total fixed maturity securities available-for-sale	11,378		1,478,005	—	1,489,383

Equity securities
Stock mutual funds	3,174		—	—	3,174
Bond mutual funds	12,354		—	—	12,354
Common stock	1,143		—	—	1,143
Non-redeemable preferred stock	281		—	—	281
Non-redeemable preferred stock fund	5,150		—	—	5,150
Total equity securities	22,102		—	—	22,102
Other long-term investments (1)	—		—	—	11,923
Total financial assets	$	33,480	1,478,005	—	1,523,408
(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 September 30, 2021, our fixed maturity securities, valued using a third-party pricing source, totaled $1.4 billion for Level 2 assets and comprised 95.8% 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 September 30, 2021. For the nine months ended September 30, 2021, 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 realized gains

September 30, 2021 | 10-Q 23

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

of $1.3 million and $5.8 million on limited partnerships held for the three and nine months ended September 30, 2021 and gains of $0.2 million for both the three and nine months ended September 30, 2020. These investments are included in other long-term investments on the consolidated balance sheets.

March 31, 2021 December 31, 2020
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)
Private equity funds
Middle market Investments in privately-originated, performing senior secured debt primarily in North America-based companies $ 8,457 31,777 10 $ 10,542 29,783 10
Term
liquidity facility Investments in a facility established by the U.S. Federal Reserve that provides financing to U.S. company market participants for levered asset purchases with a focus on asset-backed, commercial mortgage and collateralized loan obligation markets 36 0 1 1,381 0 3
Late-stage growth Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale 6,199 14,198 7 0 16,291 7
Infrastructure Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy 2,290 17,485 12 0 17,497 12
Total private equity funds $ 16,982 63,460 $ 11,923 63,571


		September 30, 2021				December 31, 2020
		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	$	13,847	26,645	10	$	10,542	29,783	10
Term liquidity facility	Investments in a facility established by the U.S. Federal Reserve that provides financing to U.S. company market participants for levered asset purchases with a focus on asset-backed, commercial mortgage and collateralized loan obligation markets	—		—	0	1,381		—	3
Late-stage growth	Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale	16,864		8,525	7	—		16,291	7
Infrastructure	Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy	1,940		17,784	12	—		17,497	12
Total limited partnerships		$	32,651	52,954		$	11,923	63,571

Our ~~private equity fund~~limited partnership investments are not redeemable because distributions ~~from the funds~~ will be received when the underlying investments of the ~~funds~~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.

We initially estimate the fair value of investments in ~~private equity funds~~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 September 30, 2021 and $6.2 million of limited partnership investments at cost at December 31, 2020.

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 0no transfers in or out of Level 3 during the ~~three~~nine months ended ~~March 31, 2021.~~September 30, 2021 or 2020.

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.

~~March 31,~~September 30, 2021 | 10-Q 2024

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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, 2021			December 31, 2020			September 30, 2021			December 31, 2020
(In thousands)	(In thousands)	Carrying Value		Fair Value	Carrying Value	Fair Value	(In thousands)	Carrying Value		Fair Value	Carrying Value	Fair Value

Financial Assets:	Financial Assets:						Financial Assets:
Policy loans	Policy loans	$	82,674	82,674	83,318	83,318	Policy loans	$	80,102	80,102	83,318	83,318
Mortgage loans		153		190	157	195
Commercial mortgage loan							Commercial mortgage loan	1,000		1,000	—	—
Residential mortgage loans							Residential mortgage loans	150		169	157	195

Cash and cash equivalents	Cash and cash equivalents	19,493		19,493	34,131	34,131	Cash and cash equivalents	30,087		30,087	34,131	34,131
Financial Liabilities:	Financial Liabilities:						Financial Liabilities:
Annuity - investment contracts	Annuity - investment contracts	61,716		68,360	60,861	71,547	Annuity - investment contracts	63,690		69,603	60,861	71,547

Policy loans. Policy loans had a weighted average annual interest rate of 7.7% at ~~March 31,~~September 30, 2021 and December 31, 2020, and no specified maturity dates. The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets. 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.

~~Mortgage~~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.

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,~~September 30, 2021 and December 31, 2020. At ~~March 31,~~September 30, 2021, maturities ranged from 75 to 1918 years. Management estimated the fair value using an annual interest rate of 6.25% at ~~March 31,~~September 30, 2021. 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,~~September 30, 2021 and December 31, 2020 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from ~~0.20%~~0.19% to ~~2.86%~~2.59% and 0.22% to 2.34%, 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.~~

Carrying Value
(In thousands)
March 31, 2021 December 31, 2020
Other long-term investments:
Private equity funds $ 16,982 18,135
FHLB common stock 190 190
Mortgage loans 153 157
All other investments 22 8,811
Total other long-term investments $ 17,347 27,293

~~March 31,~~September 30, 2021 | 10-Q 2125

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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)	September 30, 2021		December 31, 2020
Other long-term investments:
Limited partnerships	$	32,651	18,135
FHLB common stock	191		190
Mortgage loans	1,150		157
All other investments	21		8,811
Total other long-term investments	$	34,013	27,293

We are a member of the Federal Home Loan Bank ("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. Included in all other investments inat December 31, 2020 was a Rabbi Trust holding $8.8 million for the benefit of our former Chief Executive Officer, ~~Geoffrey Kolander,~~ which ~~represented~~we were required to hold for his severance payment under the terms of his employment agreement in connection with his resignation following a change in control of the ~~Company, that~~Company. This amount was paid to him during the first quarter of 2021 and thus is not reflected in all other investments at September 30, 2021.

(7) COMMITMENTS AND CONTINGENCIES

QUALIFICATION OF LIFE PRODUCTS

We have previously reported that a portion of the life insurance policies issued by our subsidiary insurance companies failed to qualify for the favorable U.S. federal income tax treatment afforded by Sections 7702 and 72(s) of the Internal Revenue Code ("IRC") of 1986. Further, we have determined that the structure of our policies sold to non-U.S. persons, which were novated to CICA Ltd. effective July 1, 2018, ~~may have~~ inadvertently generated U.S. source income over time, which subjected the Company to certain tax withholding and information reporting requirements for the Company under Chapters 3 or 4 of the IRC. The products have been and continue to be appropriately reported as life insurance under U.S. GAAP for financial reporting.

To satisfy the Internal Revenue Service ("IRS") tax withholding and information reporting requirements for the novated policies sold to non-U.S. persons as described above, the Company submitted withholding tax returns to the IRS in December 2019, and amended returns in August 2020 and paid the associated withholding tax. The IRS processed these withholding tax returns in 2021, and the Company considers this matter closed.

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,~~September 30, 2021, CICA Ltd. is committed to fund investments up to ~~$68.5~~$63.0 million related to ~~private equity funds~~limited partnerships previously described and other investments.

September 30, 2021 | 10-Q 26

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

CREDIT FACILITY

On May 5, 2021, the Company entered into a $20 million senior secured revolving credit facility (the “Credit Facility”) with Regions Bank ~~(the “Credit Facility”~~("Regions"). The Credit Facility has a ~~three-year~~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 ~~lawful~~ 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 ~~a first priority lien on most~~substantially all of ~~Citizens’~~the assets ~~excluding its ownership~~of the Company other than the equity interests in all of the regulated insurance subsidiaries, real estate owned by the Company, and ~~contains standard representations, warranties and covenants. For a more detailed description of the~~other limited exceptions. The Credit Facility ~~see the Company’s Current Report~~contains customary events of default and financial, affirmative and negative covenants, including but not limited to restrictions on ~~Form 8-K filed on May 5, 2021.~~indebtedness, liens, investments, asset dispositions and restricted payments. As of ~~May 5,~~September 30, 2021, the Company had not borrowed any funds against the Credit ~~Facility.~~Facility and was not in violation of any covenants.

CHANGE IN CONTROL

As previously disclosed, on February 5, 2021, Citizens, Inc. (the “Company”) entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with the Harold E. Riley Foundation (the “Foundation”) to purchase 100% of the Company’s Class B common stock (the “Class B Shares”) from the Foundation at an aggregate purchase price of $9.1 million (the “Class B Transaction”).

Because the Class B Shares have the right to elect a simple majority of the Board, the Foundation was able to exercise control over the Company as the holder of 100% of the Class B Shares. Thus, in order to consummate the Class B Transaction, the Company and the Foundation were required to obtain regulatory approvals by the insurance regulators in Colorado, Louisiana, Mississippi, Texas and Bermuda, the jurisdictions in which the Company and its insurance subsidiaries are domiciled. On April 12, 2021, the Company and the Foundation received the last of the regulatory approvals required for the Foundation to divest control of the Company and thus all of the Foundation’s Class B Shares were transferred to the Company as of such date. In accordance with Colorado law, the Class B Shares are now classified as authorized, but unissued shares. On March 9, 2021, the Board passed a resolution stating that as long as the Class B Shares are being held as unissued shares, the Company will not vote, nor permit any other person or entity to exercise any voting rights or other rights, with respect to the Class B Shares.

~~March 31,~~September 30, 2021 | 10-Q 2227

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

(8) INCOME TAXES

Our provision for income taxes may not have the customary relationship of taxes to income. CICA Ltd., a wholly owned subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes. As a result, the insurance activity of CICA Ltd. is subject to Subpart F of the IRC and is included in Citizens’ taxable income. For the ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Subpart F income inclusion generated ~~$0.4~~$1.3 million 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,		2021				2020
Nine Months Ended September 30,									Nine Months Ended September 30,	2021				2020
(In thousands, except for %)	(In thousands, except for %)	Amount		%		Amount	%		(In thousands, except for %)	Amount		%		Amount		%
Federal income tax expense:	Federal income tax expense:								Federal income tax expense:
Expected tax expense (benefit)	Expected tax expense (benefit)	$	(577)	21.0	%	(469)	21.0	%	Expected tax expense (benefit)	$	26	21.0	%	$	(2,093)	21.0	%

Foreign income tax rate differential	Foreign income tax rate differential	(152)		5.5	%	(550)	24.6	%	Foreign income tax rate differential	(1,904)		(1,523.2)	%	(1,726)		17.3	%

Tax-exempt interest and dividends-received deduction	Tax-exempt interest and dividends-received deduction	(30)		1.1	%	(40)	1.8	%	Tax-exempt interest and dividends-received deduction	(88)		(70.4)	%	(113)		1.1	%

Annualized effective tax rate adjustment	Annualized effective tax rate adjustment	655		(23.8)	%	617	(27.6)	%	Annualized effective tax rate adjustment	77		61.6	%	200		(2.0)	%
Adjustment of prior year taxes	Adjustment of prior year taxes	0		0	%	(5)	0.2	%	Adjustment of prior year taxes	(7)		(5.6)	%	10		(0.1)	%

Effect of uncertain tax position	Effect of uncertain tax position	603		(21.9)	%	1,015	(45.4)	%	Effect of uncertain tax position	1,842		1,473.6	%	2,673		(26.8)	%

Nondeductible costs to remediate tax compliance issue									Nondeductible costs to remediate tax compliance issue	—		—	%	(620)		6.2	%
CICA Ltd. Subpart F income	CICA Ltd. Subpart F income	392		(14.3)	%	675	(30.2)	%	CICA Ltd. Subpart F income	1,310		1,048.0	%	2,180		(21.9)	%

Rate differential on net operating loss carryback claim									Rate differential on net operating loss carryback claim	296		236.8	%	—		—	%

Nondeductible officer compensation	Nondeductible officer compensation	(73)		2.7	%	0	0	%	Nondeductible officer compensation	—		—	%	2,042		(20.5)	%
Other	Other	7		(0.3)	%	106	(4.7)	%	Other	(77)		(61.8)	%	5		(0.1)	%
Total federal income tax expense (benefit)	Total federal income tax expense (benefit)	$	825	(30.0)	%	1,349	(60.3)	%	Total federal income tax expense (benefit)	$	1,475	1,180.0	%	$	2,558	(25.8)	%

Income tax expense consists of:


	Nine Months Ended
	September 30,
(In thousands)		2021		2020
Federal income tax expense:
Current		$	1,845	2,944
Deferred		(370)		(386)
Total federal income tax expense		$	1,475	2,558

Three Months Ended March 31, 2021 2020
(In thousands)
Federal income tax expense:
Current $ 1,257 1,629
Deferred (432) (280)
Total federal income tax expense $ 825 1,349

The Company previously accrued an uncertain tax position, most of which will be released during the fourth quarter of 2021 following the expiration of the statute of limitations on the tax year ended December 31, 2017. This release will increase the carrying value of our Life Insurance segment and could potentially result in an impairment of goodwill in that segment upon the completion of our annual impairment analysis during the fourth quarter of 2021.

~~March 31,~~September 30, 2021 | 10-Q 23

~~Table of Contents~~


~~CITIZENS, INC~~.	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
		~~(Unaudited~~)

~~The components of deferred federal income taxes are as follows:~~

Net Deferred Tax Asset (Liability)
(In thousands)
March 31, 2021 December 31, 2020
Deferred tax assets:
Future policy benefit reserves $ 2,732 2,657
Net operating and capital loss carryforwards 1,774 1,395
Accrued policyholder dividends and expenses 134 124
Investments 198 147
Deferred intercompany loss 1,967 2,002
Fixed assets 481 420
Lease liability 2,446 2,514
Accrued compensation 376 513
Other 166 164
Total gross deferred tax assets 10,274 9,936
Deferred tax liabilities:
Deferred policy acquisition costs, cost of insurance acquired and intangible assets (8,531) (8,693)
Unrealized gains on investments available-for-sale (5,430) (4,522)
Tax reserves transition liability (3,549) (3,736)
Right-of-use lease asset (2,446) (2,514)
Other (35) (35)
Total gross deferred tax liabilities (19,991) (19,500)
Net deferred tax liability $ (9,717) (9,564)

~~March 31, 2021 | 10-Q 24~~28

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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 and nine months ended ~~March 31,~~September 30, 2021 and 2020, as indicated below.


Three Months Ended September 30,						Three Months Ended September 30,	2021				2020
(In thousands)	(In thousands)	Amount		Tax Effect	Total	(In thousands)	Amount		Tax Effect	Total	Amount	Tax Effect	Total
Three months ended March 31, 2021
Unrealized gains (losses):	Unrealized gains (losses):					Unrealized gains (losses):
Unrealized holding gains (losses) arising during the period	Unrealized holding gains (losses) arising during the period	$	(79,422)	5,373	(74,049)	Unrealized holding gains (losses) arising during the period	$	(9,561)	781	(8,780)	15,077	(1,009)	14,068
Reclassification adjustment for (gains) losses included in net income	Reclassification adjustment for (gains) losses included in net income	(35)		7	(28)	Reclassification adjustment for (gains) losses included in net income	(102)		22	(80)	2	—	2
Effects on deferred policy acquisition costs	Effects on deferred policy acquisition costs	25,198		(6,317)	18,881	Effects on deferred policy acquisition costs	7,975		(528)	7,447	(104)	22	(82)
Effects on cost of insurance acquired	Effects on cost of insurance acquired	269		(56)	213	Effects on cost of insurance acquired	7		(1)	6	(30)	6	(24)
Effects on unearned revenue reserves	Effects on unearned revenue reserves	(1,943)		408	(1,535)	Effects on unearned revenue reserves	15		(3)	12	185	(39)	146
Other comprehensive income (loss)	Other comprehensive income (loss)	$	(55,933)	(585)	(56,518)	Other comprehensive income (loss)	$	(1,666)	271	(1,395)	15,130	(1,020)	14,110

Three months ended March 31, 2020
Nine Months Ended September 30,						Nine Months Ended September 30,	2021				2020
(In thousands)						(In thousands)	Amount		Tax Effect	Total	Amount	Tax Effect	Total
Unrealized gains (losses):	Unrealized gains (losses):					Unrealized gains (losses):
Unrealized holding gains (losses) arising during the period	Unrealized holding gains (losses) arising during the period	$	(42,906)	2,750	(40,156)	Unrealized holding gains (losses) arising during the period	$	(35,749)	2,736	(33,013)	52,557	(4,025)	48,532
Reclassification adjustment for (gains) losses included in net income	Reclassification adjustment for (gains) losses included in net income	132		(28)	104	Reclassification adjustment for (gains) losses included in net income	(91)		19	(72)	46	(10)	36
Effects on deferred policy acquisition costs	Effects on deferred policy acquisition costs	211		(44)	167	Effects on deferred policy acquisition costs	11,681		(3,068)	8,613	(419)	88	(331)
Effects on cost of insurance acquired	Effects on cost of insurance acquired	115		(24)	91	Effects on cost of insurance acquired	284		(59)	225	(143)	30	(113)
Effects on unearned revenue reserves	Effects on unearned revenue reserves	(349)		73	(276)	Effects on unearned revenue reserves	(1,922)		404	(1,518)	712	(150)	562
Other comprehensive income (loss)	Other comprehensive income (loss)	$	(42,797)	2,727	(40,070)	Other comprehensive income (loss)	$	(25,797)	32	(25,765)	52,753	(4,067)	48,686

(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~~nine months ended ~~March 31,~~September 30, 2021. 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.~~

~~CHANGE IN CONTROL~~

~~As previously disclosed, on February 5, 2021, Citizens, Inc. (the “Company”) entered into a Purchase~~issued and ~~Sale Agreement (the “Purchase Agreement”) with the Harold E. Riley Foundation (the “Foundation”)~~determined that no significant subsequent events need to purchase 100% of the Company’s Class B common stock (the “Class B Shares”) from the Foundation at an aggregate purchase price of $9.1 million (the “Class B Transaction”). In accordance with the Purchase Agreement, the purchase price was paid to the Foundation on March 5, 2021 and is reported within other assets rather than treasury stock on the consolidated balance sheets as all regulatory approvals had not been received as of March 31, 2021.be recognized or disclosed.

~~March 31,~~September 30, 2021 | 10-Q 25

~~Table of Contents~~


~~CITIZENS, INC~~.	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
		~~(Unaudited~~)

~~March 31, 2021 | 10-Q 26~~29

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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, ~~those discussed in~~ ~~Part II, Item 1A~~statements concerning any potential future impact of ~~this Form 10-Q~~the coronavirus disease (“COVID-19”) pandemic on our business, as well as factors discussed in ~~Part I, Item 1A of~~the "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2020 ~~under the heading “Risk Factors,”~~ 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 impacts of COVID-19 and related economic conditions on the Company's financial results, which began to affect the Company late in the first quarter of 2020, continue to be highly uncertain and outside the Company’s control. 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 for the remainder of 2021. Currently, some of the most significant factors that could cause our actual results to differ significantly from our forward-looking statements are those relating to the adverse effects of the COVID-19 pandemic, including:

•Decreased premium revenue and cash flow from disruption to our distribution channel of independent agents, customer self-isolation, travel limitations, business restrictions and decreased economic activity; and

•~~An unusually high level of claims, lapses or surrenders in our insurance operations, which could affect our liquidity and cash flow.~~

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

Citizens, Inc. ("Citizens" or the "Company") is an insurance holding company incorporated in Colorado serving the life insurance needs of individuals in the United States since 1969 and internationally since 1975. Through our insurance subsidiaries, we provide insurance benefits to residents in 31 U.S. states and more than 75 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 operate in two business segments:

•Life Insurance segment - U.S. dollar-denominated ordinary whole life insurance and endowment policies predominantly sold to non-U.S. residents, located principally in Latin America and the Pacific Rim through independent marketing ~~consultants;~~consultants and whole life insurance sold domestically through independent agents; and

•Home Service Insurance segment - final expense life insurance and property insurance policies marketed to middle- and lower-income households, as well as whole life products with higher allowable face values, in Louisiana, Mississippi and Arkansas, sold through independent agents and through funeral homes.

IMPACT OF COVID-19 PANDEMIC

The impacts of COVID-19 and related economic conditions on the Company's financial results, which began to affect the Company late in the first quarter of 2020, continue to be highly uncertain. 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

September 30, 2021 | 10-Q 30

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

impact on the Company's results for the remainder of 2021 or beyond. Currently, some of the most significant factors that could cause our future results to differ significantly from our prior results or forward-looking statements include:

•decreased premium revenue due to disruption to our distribution channel and overall operations resulting from quarantines, travel limitations, business restrictions and decreased economic activity;

•higher surrenders and lapses due to cash needs our policyholders may have due to concerns over COVID-19 economic impacts, particularly in our international business;

•a higher level of claims due to COVID-19 deaths; and

•the vulnerability of our Home Service Insurance business in particular to any future increase in the intensity of the pandemic, and any related or unrelated material health crisis or negative health trend, especially if concentrated in or directly impacting the southeastern part of the United States.

We believe that in the third quarter of 2021, we experienced higher than normal death claims due to the impact of COVID-19. As we previously disclosed, the Delta variant of COVID-19, which has become the predominant strain of COVID-19 globally, is associated with higher rates of transmission and deaths, particularly in unvaccinated individuals.

We continue to monitor the impact of the COVID-19 pandemic on our operations.

IMPACT OF HURRICANE IDA

Hurricane Ida was a destructive Category 4 hurricane that made landfall in Louisiana on August 29, 2021 and became the second-most damaging and intense hurricane in the U.S. state of Louisiana on record, behind Hurricane Katrina in 2005. We sell property insurance through Security Plan Fire Insurance Company in the state of Louisiana. Hurricane Ida negatively affected our income in the third quarter by approximately $2.3 million. For hurricanes, we pay the first $0.5 million in claims and our non-affiliated catastrophic reinsurance carriers pay the next $10.5 million in claims. We expect claims from Hurricane Ida to exceed our reinsurance by approximately $0.8 million and thus the total claim impact to us is expected to be approximately $1.2 million. In addition, due to Hurricane Ida, we incurred a reinstatement premium for reinsurance coverage in case of a second major storm this year, resulting in an additional premium charge during the third quarter of 2021 of approximately $1.1 million, which offsets premium revenue for the Home Service Insurance segment. Our catastrophic event reinsurance agreement allows coverage on a maximum of two catastrophic events per calendar year per reinsurance layer.

~~March 31,~~September 30, 2021 | 10-Q 2731

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

CURRENT FINANCIAL HIGHLIGHTS

Our net loss decreased by $5.1 million in the three months ended September 30, 2021 and $11.2 million in the nine months ended September 30, 2021, to $2.8 million and $1.4 million, respectively, compared to $7.9 million and $12.5 million in prior year periods. The decrease in our net loss in both periods was primarily due to a decrease in other general expenses of $8.8 million and $8.6 million, respectively, in the current year periods, due to executive severance costs and professional fees paid in 2020 in connection with a change in control of the Company. The decrease in our net loss was also due to an increase in realized gains of $1.6 million and $6.6 million, respectively in the three and nine months ended September 30, 2021. The realized gains primarily reflect changes in the fair value of our limited partnership investments and the sale of our offsite training facility located near Austin, Texas, which resulted in a gain of $1.0 million during the third quarter of 2021. We did not sell any of our limited partnership investments or receive any distributions in the third quarter of 2021, but as discussed in Part I, Item 1, Note 5. Investments, changes in fair values of our equity securities are reflected in realized gains, in addition to executed transactions that result in a gain or loss. As discussed above, decreases in general expenses and increases in realized gains in the three and nine-months ended September 30, 2021 as compared to the same periods in 2020, were offset by higher death claims due to COVID-19 and the impact of Hurricane Ida on our premiums and claims in the current year.

Consolidated Revenue Highlights

Life insurance premiums and investment income are our primary sources of revenue. In the three months ended September 30, 2021 compared to the same period in 2020, total revenue increased by $1.8 million.

•Life insurance premiums increased by $0.5 million due primarily to an increase in first year premiums in our Life Insurance and Home Service Insurance segments and an increase in renewal premiums in our Home Service Insurance segment. Total first year premiums increased by 35.5% year over year during the third quarter. We believe this increase was driven by our focused marketing campaigns, as well as lower sales in the prior year period due to COVID 19 impacts as previously described. Total premiums, however, decreased by $0.8 million due to decreased property insurance premiums related to the reinstatement of catastrophic reinsurance as a result of Hurricane Ida, as discussed above.

•Net investment income increased by $0.5 million, or 3.0%, despite a lower average portfolio yield in the current year period due to a growing asset base and strong results from our Middle market private equity investment.

•As mentioned above, realized investment gains increased by $1.6 million.

In the nine months ended September 30, 2021 as compared to the same period in 2020, total revenue increased by $6.7 million.

•Insurance premiums declined by $1.7 million, or 1.4%. The $2.4 million increase in first year premiums was offset by a decline in renewal premiums in our Life Insurance segment to $81.2 million in the first nine months of 2021 from $85.6 million in the same period in 2020. The decrease

September 30, 2021 | 10-Q 32

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

in renewal premiums resulted primarily from a decline in our in force business in this segment, due in part to changes we made to our products and distribution over the last several years, which offset the positive impact from reduced COVID-related impact and the Company's premium retention efforts.

•Net investment income increased by $0.9 million, or 2.1%.

•As mentioned above, realized investment gains increased by $6.6 million.

Other income consists primarily of policyholders in our Life Insurance segment selecting supplemental contracts upon the surrender or maturity of their original policies, which has been increasing over the past few quarters.

Consolidated Benefits and Expenses Highlights

The primary use of our funds is the payment of insurance benefits for claims, surrenders and matured endowment as well as our general operating expenses.

In the three months ended September 30, 2021 compared to the same period in 2020, total benefits and expenses decreased by $3.7 million. Other general expenses decreased by $8.8 million for the reasons discussed above. Decreased general expenses were offset primarily by:

•$5.8 million increase in total insurance benefits paid or provided due to an increase in future policy benefit reserves as a result of higher sales production and better persistency; and

•Higher commissions paid in 2021 due to higher sales of new insurance policies in both of our segments in the third quarter of 2021 compared to the comparable period last year, when premiums were materially impacted by the COVID-19 pandemic as disclosed previously. Commissions on our first year sales are much higher than commissions on our renewal business.

In the nine months ended September 30, 2021 compared to the same period in 2020, total benefits and expenses decreased by $3.4 million. Other general expenses decreased by $8.6 million for the reasons discussed above. Decreased general expenses were offset primarily by:

•$4.5 million increase in claims and surrender benefits due primarily to a higher volume of reported claims, including those COVID-19 related, in addition to an increase in the average death claim amount; and

•Higher commissions paid in 2021 for the reasons discussed above.

Financial Condition at September 30, 2021

•Total investments of $1.6 billion; fixed maturity securities comprised 91.4% of total investments.

•Total assets of $1.8 billion.

•Total stockholders' equity of $0.3 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 OPERATING SEGMENTS

Our business is comprised of two operating business segments, as detailed below.

•Life Insurance

•Home Service Insurance

September 30, 2021 | 10-Q 33

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

•Home Service Insurance segment - final expense life insurance and limited liability property insurance policies marketed to middle- and lower-income households in Louisiana, Mississippi and Arkansas, sold through independent agents and through funeral homes.

~~CURRENT FINANCIAL HIGHLIGHTS~~

In both the three months ended March 31, 2021 and 2020, we had a net loss of $3.6 million; however, our net loss before federal income tax increased by $0.5 million in the three months ended March 31, 2021 compared to prior year period. The increase in the pre-tax net loss in the 2021 period was driven by a $4.1 million increase in claims and surrender benefits, which was higher in both our Life Insurance and our Home Service Insurance segments. The higher claim expense was a result of a higher volume of reported claims, including those COVID-19 related, in addition to an increase in the average death claim amount in both segments. We also continued to experience an increase in surrender benefits and matured endowments in the Life Insurance segment, which we believe is due primarily to the aging block of business and other economic circumstances.

~~Our realized investment gains improved by $1.6 million in the three months ended March 31, 2021, to $0.3 million, from a $1.3 million loss in the prior year period. As discussed in Part I, Item 1,~~ ~~Note 5~~. ~~Investments~~, changes in realized gains reflect the changes in fair values of our equity securities. In the three months ended March 31, 2020, we recorded realized losses of $1.1 million, which were primarily the result of the sudden stock market decline resulting from the onset of the COVID-19 pandemic.

Our other general expenses continued to be negatively impacted in the three months ended March 31, 2021 by the expenses related to professional fees incurred in connection with the change in control of the Company. A detailed description of the change in control of the Company and expenses related thereto are included in the Company’s Annual Report on ~~Form 10-K~~ for the fiscal year ended December 31, 2020 ("Form 10-K"). The settlement of all legal issues related to the change in control occurred in the first quarter of 2021 and thus, we do not expect any additional expenses related to this matter. See Part I, Item 1, Business – "Change in Control; Agreement to Purchase the Class B Shares; Anticipated Divestiture of Control” in our ~~Form 10-K~~ ~~and Part I, Item 1,~~ ~~Note.~~ 11 ~~Subsequent Events~~ in the notes to our consolidated financial statements herein for a further discussion of the change in control. Despite the change in control costs, our other general expenses decreased slightly for the three months ended March 31, 2021 compared to the same period in 2020. The change in control costs were offset by lower salary and benefit expenses resulting from converting our Home Service Insurance sales agents to independent agents and lower audit and consulting fees.

~~Consolidated Revenue Highlights~~

~~Insurance premiums and investment income are our primary sources of revenue. In the three months ended March 31, 2021 as compared to the same period in 2020:~~

•Insurance premiums declined by $2.3 million, or 5.5%, to $39.0 million from $41.3 million in the same period in 2020. The decline was driven by our Life Insurance segment as renewal premiums declined 9.3% to $24.6 million in the first quarter of 2021 from $27.1 million in the same period in 2020. The decrease in renewal premiums resulted primarily from a decline in our in force business in this segment, which is due in part to changes we made to our products and distribution over the last few years.

•~~Net investment income was $15.2 million in both periods.~~

Additionally, realized investment gains increased by $1.6 million primarily for the reason discussed above. Other income increased 68.8% to $0.9 million from $0.5 million for the same period in 2020. Other income consists primarily of policyholders selecting supplemental contracts upon maturity of their original policies, which has been increasing over the past few quarters.

~~March 31, 2021 | 10-Q 28~~

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~~CITIZENS, INC.~~			~~MANAGEMENT'S DISCUSSION & ANALYSIS~~

~~Consolidated Benefits and Expenses Highlights~~

The primary use of our funds is payment of insurance benefits. As discussed above, our claims and surrender benefits increased by $4.1 million in the three months ended March 31, 2021 as compared to the same period in prior year; however, total insurance benefits paid or provided was essentially flat year-over-year, as the increase in claims and surrender benefits was offset by a decrease in future policy benefit reserves. Future policy benefit reserves decreased due to the lower in force block of business.

The other primary use of funds are the costs of selling our insurance products (e.g., commissions, underwriting, marketing expenses) and general expenses. Costs incurred related to selling our insurance products remained flat in the three months ended March 31, 2021 as compared to the same period in prior year and as discussed above, general expenses slightly decreased for the period.

~~2021 First Quarter Financial Condition~~

•~~Total investments of $1.5 billion; fixed maturity securities comprised 91.9% of total investments.~~

•~~Total assets of $1.8 billion.~~

•~~$4.6 billion of direct insurance in force.~~

•~~No debt.~~

~~OUR OPERATING SEGMENTS~~

~~Our business is comprised of two operating business segments, as detailed below.~~

•~~Life Insurance~~

•~~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.


Three Months Ended March 31,		2021					2020
Nine Months Ended September 30,												Nine Months Ended September 30,			2021			2020
		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			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	Life Insurance	$	50,330,540	863	$	58,320	$	49,611,100	728	$	68,147	Life Insurance	$	172,645,808	2,873	$	60,093	$	142,390,980	2,214	$	64,314
Home Service Insurance	Home Service Insurance	44,658,259		6,361	7,021		36,117,767		5,174	6,981		Home Service Insurance	142,678,954		18,533	7,699		103,456,413		20,261	5,106
Total	Total	$	94,988,799	7,224			$	85,728,867	5,902			Total	$	315,324,762	21,406			$	245,847,393	22,475

WeTotal insurance issued ~~$95.0 million of insurance~~increased by 28.3% in the ~~three~~nine months ended ~~March 31,~~September 30, 2021, ~~as compared to $85.7~~from $245.8 million in the first nine months of 2020 to $315.3 million in 2021, as both our Life Insurance and Home Service Insurance segments experienced growth. We issued ~~7,224~~21,406 new policies in the 2021 asperiod, compared to ~~5,902~~22,475 new policies in ~~2020.~~the 2020 period.

The number of policies issued in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 increased ~~18.5%~~29.8% in the Life Insurance ~~segment. The~~segment from the same period in 2020. We believe the increase ~~in applications in the first quarter~~ was primarily due to enhancements to our business operations and sales practices to account for the impact of the COVID-19 pandemic ~~including~~as well as continued sales promotions and campaigns, focused training on virtual selling, and strategically prioritizing selling lower face amount policies ~~which typically have less stringent underwriting requirements and, in some cases, may not require the completion of medical tests, as many of our top international markets remain in quarantine~~ due to the COVID-19 pandemic. In addition, in order to address the decreasing first year premiums we have seen in recent years in this segment, we prioritized recruiting new independent contractors in the first quarter of 2021, and we have seen the impact of these efforts through September. Although applications increased during the first nine months of 2021 compared to the same period last year due to these enhancements, average policy face amount declined, as we continued to emphasize the selling of lower face amount policies, as noted above.

The number of policies issued in the nine months ended September 30, 2021 decreased 8.5% in the Home Service Insurance segment compared to the same period in 2020; however, the amount of insurance issued increased by 38% due to higher average policy face amounts. We believe the higher average policy face amounts issued are 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.

~~March 31,~~September 30, 2021 | 10-Q 2934

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

addition, in order to address the decreasing first year premiums we have seen in recent years in this segment, we prioritized recruiting new independent contractors in the first quarter of 2021, and we began to see the impact of these efforts in March. Although applications increased during the first quarter of 2021 compared to the same period last year due to these enhancements, average policy face amount declined by almost $10,000 per policy, as we continued to emphasize the selling of lower face amount policies, as noted above.

The number of policies issued in the three months ended March 31, 2021 increased 22.9% in the Home Service Insurance segment compared to the same period in 2020. The increase in new business applications in our Home Service Insurance segment was driven by the broadening of a sales campaign introduced during the third quarter of last year targeted at existing policyholders that emphasizes increased coverage as well as lower applications received in the prior year period as the onset of the COVID-19 pandemic and stay-at-home orders negatively impacted our business. During the first quarter of 2021, as part of the campaign, we increased the target face amount of insurance. As a result, the overall average face amount of policies issued for the Home Service Insurance segment increased slightly compared to the first quarter of 2020.

CONSOLIDATED RESULTS OF OPERATIONS

A discussion of consolidated results is presented below, followed by a discussion of segment operations and financial results by segment.

REVENUES

Our revenues are generated primarily by insurance renewal premiums and investment income onfrom invested assets.


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020

Revenues:	Revenues:						Revenues:
Premiums:	Premiums:						Premiums:
Life insurance	Life insurance		$	37,642		39,946	Life insurance	$	43,239	42,732	122,319	122,863
Accident and health insurance	Accident and health insurance		343			261	Accident and health insurance	311		236	945	745
Property insurance	Property insurance		1,047			1,110	Property insurance	(223)		1,140	1,921	3,313
Net investment income	Net investment income		15,244			15,169	Net investment income	15,454		14,997	46,018	45,081
Realized investment gains (losses), net			292			(1,306)
Realized investment gains, net							Realized investment gains, net	2,126		527	7,277	669
Other income	Other income		915			542	Other income	677		193	2,145	1,217
Total revenues	Total revenues		$	55,483		55,722	Total revenues	$	61,584	59,825	180,625	173,888

Premium Income. ~~Premium~~Total premium income ~~derived from life, accident and health, and property insurance sales~~ decreased ~~$2.3~~$0.8 million, or ~~5.5%~~1.8%, for the ~~three~~third quarter, and decreased $1.7 million, or 1.4% for the nine months ended ~~March 31,~~September 30, 2021 compared to the same ~~period~~periods in 2020. ~~The overall decrease~~

•Three months ended September 30, 2021: Life insurance premiums increased by $0.5 million due to an increase in ~~premium income was driven primarily by~~first year premiums in our Life Insurance segment and an increase in both first year and renewal premiums in our Home Service Insurance segment; however, total premiums decreased due to a ~~$2.5~~$1.4 million decline ~~throughout~~in property insurance premiums primarily related to the reinstatement of catastrophic reinsurance as a result of Hurricane Ida, as discussed above.

•Nine months ended September 30, 2021: Despite higher first ~~three months of 2021~~year premiums in both our segments and slightly higher renewal premiums in our Home Service Insurance segment, total premiums declined due to lower renewal premiums in our Life Insurance ~~segment.~~ segment and the decrease in property insurance premiums in the third quarter as discussed above.

The decrease in renewal premiums in the Life Insurance segment ~~continues~~in both the three and nine months ended September 30, 2021, as compared to ~~result from~~the prior year periods, is mainly due to a continuing decline in our in force business in this segment over the ~~past few~~last several years ~~which is~~ due ~~in part~~ to an aging block of business and changes we made to our products and distribution ~~and~~beginning in 2017. The prior-year surrenders ~~outpacing new sales. Premium revenues continue to be~~ negatively impacted ~~by high levels of surrenders, which we~~the current period renewal premiums even though total surrender benefits paid declined in the current three-month period as compared to the prior year period and were basically flat in the current nine-month period as compared to the same period in 2020.

We believe ~~are due not only to an aging block of business (i.e., maturities~~that first year premiums were negatively affected in the three and surrenders of products where the surrender charges are close to expiring or have expired) and our decision to cease issuing new policies in Brazil in 2017 (where we see many policies lapsing), but alsonine months ended September 30, 2020 due to ~~economic circumstances in Latin America. See~~ the ~~detailed distribution~~impacts of ~~premiums within~~ ~~Segment Operations~~ ~~discussed below.~~the COVID-19 pandemic, especially the initial global stay-at-home orders.

~~March 31,~~September 30, 2021 | 10-Q 3035

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

Net Investment Income. Our annualized net investment income performance is summarized as ~~follows.~~follows:


		March 31,			December 31,		March 31,			September 30,			December 31,		September 30,
(In thousands, except for %)	(In thousands, except for %)	2021			2020		2020		(In thousands, except for %)	2021			2020		2020

Net investment income, annualized	Net investment income, annualized	$	60,976		60,197		60,676		Net investment income, annualized	$	61,357		60,197		60,108
Average invested assets, at amortized cost	Average invested assets, at amortized cost	1,449,518			1,420,129		1,408,688		Average invested assets, at amortized cost	1,448,615			1,420,129		1,409,993
Annualized yield on average invested assets	Annualized yield on average invested assets	4.21		%	4.24	%	4.31	%	Annualized yield on average invested assets	4.24		%	4.24	%	4.26	%

Annualized net investment income increased ~~slightly~~by $1.2 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to the same nine months of 2020 despite a lower annualized ~~performance in~~yield. The increase is due to our growing asset base and the ~~2020 period as an increase in average invested assets derived from cash flows~~make-whole call redemptions described below, and to strong yields from our ~~insurance operations and a one-time benefit described below offset a lower portfolio yield.~~Middle market private equity investment. The annualized yield decreased by ~~ten~~two basis points during the first ~~quarter~~nine months of 2021 compared to the same period in 2020, as we continue to face a challenging investment environment for fixed maturity assets, which account for the majority of our investment portfolio. As part of the ongoing process of managing our portfolio and optimizing performance, in addition to fixed maturity securities, we ~~are continuing to identify and invest~~have been investing in new asset classes, including ~~private equities.~~limited partnerships; however, insurance regulations limit the amount we can invest in these alternative investments.

Investment income from fixed maturity securities accounted for approximately ~~87.9%~~86.1% and 87.2% of total investment income for the three and nine months ended ~~March 31, 2021.~~September 30, 2021, respectively.


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020

Gross investment income:	Gross investment income:						Gross investment income:
Fixed maturity securities	Fixed maturity securities		$	14,100		13,868	Fixed maturity securities	$	13,786	13,593	41,682	40,973
Equity securities	Equity securities		207			180	Equity securities	213		214	636	593
Policy loans	Policy loans		1,644			1,623	Policy loans	1,604		1,666	4,811	4,918
Long-term investments	Long-term investments		73			1	Long-term investments	389		72	642	91
Other investment income	Other investment income		15			68	Other investment income	15		3	35	87
Total investment income	Total investment income		16,039			15,740	Total investment income	16,007		15,548	47,806	46,662
Investment expenses	Investment expenses		(795)			(571)	Investment expenses	(553)		(551)	(1,788)	(1,581)
Net investment income	Net investment income		$	15,244		15,169	Net investment income	$	15,454	14,997	46,018	45,081

Income from fixed maturity securities income increased 1.4% and 1.7% for the three and nine months ended ~~March 31,~~September 30, 2021, respectively, compared to the same ~~period~~periods in 2020, and our total investment income increased by ~~1.9%~~3.0% and 2.5% in the same ~~period~~periods. These increases were primarily due to ~~the recognition of accelerated interest payments resulting from~~two non-recurring events, (i) a ~~“make-whole”~~"make-whole" call redemption, ~~whereby the borrower was required to pay a lump sum based on the net present value of interest payments foregone due to the call. Investment expenses were slightly higher due to~~and (ii) early distributions from our ~~increased investments in private equity, which often include start-up fees.~~limited partnership investments.

Realized Investment Gains (Losses), Net. We recorded realized gains of ~~$0.3~~$1.3 million and $5.8 million related to fair value changes in our investments in limited partnerships during the three and nine months ended September 30, 2021, respectively. We also recorded realized losses of $0.4 million and realized gains of $0.2 million during the ~~first quarter of~~three and nine months ended September 30, 2021, respectively, related to fair value changes in our equity securities owned at ~~March 31,~~September 30, 2021. The fair value of our equity securities owned at ~~March 31,~~September 30, 2020 was negatively impacted by the onset of the COVID-19 pandemic as discussed ~~above.~~previously.

The Company also sold its former training facility located near Austin, Texas during the third quarter 2021, which resulted in a gain on the sale of $1.0 million.

~~March 31,~~September 30, 2021 | 10-Q 3136

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

BENEFITS AND EXPENSES

Three Months Ended
March 31,
(In thousands) 2021 2020

Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders $ 30,589 26,449
Increase in future policy benefit reserves 5,232 9,471
Policyholders' dividends 1,306 1,233
Total insurance benefits paid or provided 37,127 37,153
Commissions 8,157 7,853
Other general expenses 11,382 11,473
Capitalization of deferred policy acquisition costs (4,985) (5,009)
Amortization of deferred policy acquisition costs 6,183 6,119
Amortization of cost of insurance acquired 367 368
Total benefits and expenses $ 58,231 57,957


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
(In thousands)	2021		2020	2021	2020

Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	$	31,816	32,958	91,701	87,161
Increase in future policy benefit reserves	10,888		4,158	22,407	21,866
Policyholders' dividends	1,650		1,450	4,431	4,011
Total insurance benefits paid or provided	44,354		38,566	118,539	113,038
Commissions	9,115		7,712	26,073	22,279
Other general expenses	10,542		19,391	33,427	42,003
Capitalization of deferred policy acquisition costs	(6,026)		(4,892)	(16,798)	(13,632)
Amortization of deferred policy acquisition costs	6,043		6,760	18,300	18,940
Amortization of cost of insurance acquired	283		459	959	1,228
Total benefits and expenses	$	64,311	67,996	180,500	183,856

Death claims benefits, surrender benefits and general expenses are our primary uses of cash.

Claims and Surrenders. Death claim and surrender benefits are our primary use of cash. As reflected in the table below, claims and surrender benefits increased 16.6%, from $18.6 million in the three months ended March 31, 2020, to $21.7 million in the three months ended March 31, 2021.


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020

Claims and Surrenders:	Claims and Surrenders:						Claims and Surrenders:
Death claim benefits	Death claim benefits		$	8,940		6,589	Death claim benefits	$	9,723	7,724	25,207	21,359
Surrender benefits	Surrender benefits		12,807			12,055	Surrender benefits	12,435		16,131	38,771	38,861
Endowment benefits	Endowment benefits		2,401			2,739	Endowment benefits	2,360		2,706	7,012	8,064
Matured endowment benefits	Matured endowment benefits		5,122			3,753	Matured endowment benefits	4,276		4,475	15,060	14,376
Property claims	Property claims		321			487	Property claims	1,765		966	2,401	1,769
Accident and health benefits	Accident and health benefits		59			53	Accident and health benefits	98		33	200	147
Other policy benefits	Other policy benefits		939			773	Other policy benefits	1,159		923	3,050	2,585
Total claims and surrenders	Total claims and surrenders		$	30,589		26,449	Total claims and surrenders	$	31,816	32,958	91,701	87,161

•Death claim benefits increased ~~35.7%~~25.9% and 18.0% for the three and nine months ended ~~March 31,~~September 30, 2021, respectively, compared to the same periods in 2020. Claims in our Life Insurance segment increased 88.4% during the third quarter and 65.2% during the first nine months of 2021 compared to the same ~~period~~periods in ~~2020 - Life Insurance segment claims increased 55.6%~~2020. The increases were due to both a higher volume and a higher average amount of reported claims. Home Service Insurance segment claims increased ~~28.6%. As discussed above in "Current Financial Highlights", the increase was due to increases in reported claims, including COVID-19 related deaths,~~9.6% and ~~the average dollar amount of claims incurred.~~

•~~Surrender benefits increased 6.2%~~5.2% for the three and nine months ended ~~March 31,~~September 30, 2021, respectively, as compared to the prior year periods. The increases during the first three and nine months of 2021 compared to the same ~~period~~periods last year was due primarily to COVID-19 related deaths, which we believe materially impacted our consolidated results of operations in ~~2020. Surrender benefits represented less than 0.3%~~the third quarter of ~~total direct ordinary whole life insurance in force of $4.6 billion~~2021, as ~~of March 31, 2021. A significant portion of surrender benefits relates to international policies that have been in force and have little or no associated surrender charges.~~described above.

~~March 31,~~September 30, 2021 | 10-Q 3237

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

•~~Matured endowment~~Surrender benefits ~~increased 36.5%~~decreased 22.9% and 0.2% for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. Surrender benefits represented less than 0.8% of total direct ordinary whole life insurance in force of $4.6 billion as of September 30, 2021. Prior to the three months ended ~~March 31,~~September 30, 2021, our surrender benefits had been increasing due to international policies that have been in force for an extended period and have little or no associated surrender charges. We have focused our efforts on retaining policyholders and believe we have begun to see positive benefits from these efforts starting in the third quarter of 2021.

•Matured endowment benefits decreased 4.4% and increased 4.8% for the three and nine months ended September 30, 2021, respectively, compared to the same ~~period~~periods in 2020. We anticipated ~~this increase~~these fluctuations based upon the dates when our endowment contracts were sold and the maturity dates set forth in the contracts.

•Property claims increased 82.7% and 35.7% in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, due to higher hurricane property claims.

Increase in Future Policy Benefit Reserves. The change in future policy benefit reserves ~~decreased 44.8%~~increased 161.9% and 2.5% for the three and nine months ended ~~March 31,~~September 30, 2021, respectively, compared to the same ~~period~~periods in ~~2020. Future policy benefit reserves decreased as~~2020 due to better persistency and higher production in our ~~block of in force business decreased.~~Home Service Insurance and Life Insurance segments. See Segment Operations below for more detail.

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. Commissions fluctuate directly in relation to sales and were higher in the three and nine months ended ~~March 31,~~September 30, 2021 as compared to the same periods in 2020 due to ~~the increase in~~higher first year sales in ~~our Home Service Insurance segment.~~2021.

Other General Expenses. ~~As mentioned above, general~~General expenses decreased ~~slightly~~45.6% and 20.4% in the three and nine months ended ~~March 31,~~September 30, 2021 compared to the same ~~period~~periods in 2020. As discussed above, the three and nine months ended September 30, 2020 ~~driven primarily~~were negatively impacted by ~~lower incentive compensation costs, and lower audit and consulting costs.~~severance payments, professional fees related to our change in control.

Capitalization and Amortization of Deferred Policy Acquisition Costs. Costs capitalized include certain commissions, policy issuance costs, and underwriting and agency expenses that relate to successful sales efforts for insurance contracts. Capitalized costs ~~decreased slightly~~increased during the three and nine months ended ~~March 31,~~September 30, 2021 compared to the same ~~period~~periods in 2020 as we experienced ~~a decrease~~an increase in first year premium production ~~in our Life Insurance segment~~ as previously discussed. Amortization of deferred policy acquisition costs was ~~slightly higher~~lower during the three and nine months ended ~~March 31,~~September 30, 2021 compared to the same ~~period~~periods in the prior year. Amortization is impacted by persistency, surrenders, and new sales production and thus it may fluctuate from quarter to quarter.

Federal Income Tax. Tax expense ~~decreased~~increased for the three months and decreased for the nine months ended ~~March 31,~~September 30, 2021 ~~compared to the same period in 2020~~ resulting in effective tax rates of ~~(30.0)~~(2.8)% and ~~(60.3)~~1,180.0% compared to 3.1% and (25.8)%~~, respectively. For~~ for the ~~three months ended March 31,~~same periods in 2020, ~~the Company's federal income tax expense was impacted by the gain realized on the sale of our former corporate headquarters.~~respectively. The Company's tax rate was impacted by differences between our effective tax rate and the statutory tax rate resulting from income and expense items that are treated differently for financial reporting and tax purposes. In addition, CICA Ltd., a wholly-owned Bermuda subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes and CICA Ltd.'s activity gives rise to taxable income in the U.S. as Subpart F Income, which is treated as a permanent tax difference and therefore included in the Company's effective tax rate calculation. See Part I, Item 1, Note 8. Income Taxes in the notes to our consolidated financial statements herein.

September 30, 2021 | 10-Q 38

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

SEGMENT OPERATIONS

Our business is comprised of two operating business segments, as detailed below.

•Life Insurance

•Home Service Insurance

These segments are reported in accordance with U.S. GAAP. 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.

~~March 31, 2021 | 10-Q 33~~

~~Table of Contents~~


~~CITIZENS, INC.~~			~~MANAGEMENT'S DISCUSSION & ANALYSIS~~

The following table shows income (loss) before federal income taxes by segments during the periods indicated.


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020
Income (loss) before federal income tax expense:	Income (loss) before federal income tax expense:						Income (loss) before federal income tax expense:
Segments:	Segments:						Segments:
Life Insurance	Life Insurance		$	(106)		2,086	Life Insurance	$	1,686	5,508	8,707	9,713
Home Service Insurance	Home Service Insurance		(758)			(2,145)	Home Service Insurance	(4,099)		(1,026)	(4,319)	(3,197)
Total segments	Total segments		(864)			(59)	Total segments	(2,413)		4,482	4,388	6,516
Other Non-Insurance enterprises	Other Non-Insurance enterprises		(1,884)			(2,176)	Other Non-Insurance enterprises	(314)		(12,653)	(4,263)	(16,484)
Total loss before federal income tax expense			$	(2,748)		(2,235)
Total income (loss) before federal income tax expense							Total income (loss) before federal income tax expense	$	(2,727)	(8,171)	125	(9,968)

LIFE INSURANCE

Our Life Insurance segment primarily operates through CICA Ltd. (a Bermuda company), which issues ordinary whole life insurance and endowment policies in U.S. Dollar-denominated amounts to non-U.S. residents in more than 75 different countries through independent marketing consultants. The whole life products are designed to provide a fixed amount of insurance coverage over the life of the insured and can include rider benefits to provide additional coverage and annuity benefits to enhance accumulations. The endowment contracts are principally accumulation contracts that incorporate an element of life insurance protection. For the majority of our business, we retain the first $0.1 million on any one life and reinsure the remainder of the risk. We operate the Life Insurance segment internationally through CICA Ltd. and domestically through our CICA and CNLIC insurance subsidiaries.

~~March 31,~~September 30, 2021 | 10-Q 3439

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

The results of operations for the Life Insurance segment for the periods indicated are as follows:


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020
Revenues:	Revenues:						Revenues:
Premiums	Premiums		$	27,063		29,819	Premiums	$	32,198	32,265	89,399	92,146
Net investment income	Net investment income		11,598			11,480	Net investment income	11,991		11,507	35,468	34,332
Realized investment gains (losses), net			(108)			735
Realized investment gains, net							Realized investment gains, net	1,205		133	5,741	1,259
Other income	Other income		913			524	Other income	676		189	2,142	1,195
Total revenues	Total revenues		39,466			42,558	Total revenues	46,070		44,094	132,750	128,932
Benefits and expenses:	Benefits and expenses:						Benefits and expenses:
Insurance benefits paid or provided:	Insurance benefits paid or provided:						Insurance benefits paid or provided:
Claims and surrenders	Claims and surrenders		23,270			20,160	Claims and surrenders	22,565		25,023	69,366	66,071
Increase in future policy benefit reserves	Increase in future policy benefit reserves		3,658			8,146	Increase in future policy benefit reserves	9,369		3,274	17,081	18,804
Policyholders' dividends	Policyholders' dividends		1,296			1,225	Policyholders' dividends	1,638		1,443	4,400	3,987
Total insurance benefits paid or provided	Total insurance benefits paid or provided		28,224			29,531	Total insurance benefits paid or provided	33,572		29,740	90,847	88,862
Commissions	Commissions		4,231			4,478	Commissions	4,854		4,140	13,483	11,912
Other general expenses	Other general expenses		5,226			4,948	Other general expenses	4,900		1,915	15,273	11,309
Capitalization of deferred policy acquisition costs	Capitalization of deferred policy acquisition costs		(3,561)			(3,921)	Capitalization of deferred policy acquisition costs	(4,201)		(3,512)	(11,578)	(10,149)
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs		5,348			5,318	Amortization of deferred policy acquisition costs	5,191		6,190	15,739	16,927
Amortization of cost of insurance acquired	Amortization of cost of insurance acquired		104			118	Amortization of cost of insurance acquired	68		113	279	358
Total benefits and expenses	Total benefits and expenses		39,572			40,472	Total benefits and expenses	44,384		38,586	124,043	119,219
Income (loss) before federal income tax expense	Income (loss) before federal income tax expense		$	(106)		2,086	Income (loss) before federal income tax expense	$	1,686	5,508	8,707	9,713

Income before federal income tax expense declined in the three months ended September 30, 2021 as compared to the prior year periods due to a large increase in future policy benefit reserves this quarter due to better persistency and higher production. In the nine months ended September 30, 2021, income before federal income tax expense decreased by $1.0 million. Realized gains related to our limited partnership investments were negatively offset by lower renewal premiums and increased death claims, partly due to the COVID-19 pandemic and to higher commissions due to better first year sales in 2021. The decline to net income in both the three and nine months ended September 30, 2021 was also due to lower other general expenses in this segment during the 2020 period due to the release of our tax compliance liability.

September 30, 2021 | 10-Q 40

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

Life Insurance segment premium breakout is detailed below.


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020
Premiums:	Premiums:						Premiums:
First year	First year		$	2,479		2,715	First year	$	2,998	2,214	8,201	6,517
Renewal	Renewal		24,584			27,104	Renewal	29,200		30,051	81,198	85,629
Total premiums	Total premiums		$	27,063		29,819	Total premiums	$	32,198	32,265	89,399	92,146

Premiums. We derive most of our premium revenue in the Life Insurance segment from renewal premiums. Total premium revenues ~~declined 9.2%~~decreased slightly for the three months and declined 3.0% for the nine months ended ~~March 31,~~September 30, 2021 compared to the same ~~period~~periods in ~~2020 and~~2020. While first year premiums increased in both periods in 2021, renewal premiums declined by ~~9.3%.~~2.8% and 5.2% for the same three and nine periods, respectively. See ~~“Consolidated~~Consolidated Results of ~~Operations”~~Operations above for a discussion regarding the increase in first year premiums and the decline in renewal premiums in this segment. ~~As previously mentioned, first~~First year policies issued increased by 29.8% in the ~~three~~nine months ended ~~March 31,~~September 30, 2021, but due to lower issued face amounts, ~~led to the decline in first year premium revenue. Endowment sales totaled approximately $2.2 million of~~ first year premiums induring the ~~three months ended March 31, 2021, as compared to $2.0 million in the prior year period.~~period rose slightly less at 25.8%.

~~March 31,~~September 30, 2021 | 10-Q 3541

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

The following ~~table~~graph sets forth, for our top five producing countries, our direct premiums from our international life insurance business for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020.

Three Months Ended
March 31,
(In thousands) 2021 2020
Country:
Colombia $ 5,244 5,888
Taiwan 4,484 4,974
Venezuela 4,368 4,953
Ecuador 2,921 3,111
Argentina 1,828 1,823
Other Non-U.S. 8,105 8,201
Total $ 26,950 28,950


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
(In thousands)	2021		2020	2021	2020
Country:
Colombia	$	6,368	5,858	17,635	17,727
Venezuela	4,729		5,000	13,593	14,890
Taiwan	3,905		4,157	13,132	13,013
Ecuador	3,420		3,443	9,687	9,781
Argentina	2,785		2,466	7,021	6,722
Other Non-U.S.	10,259		10,346	28,447	27,894
Total	$	31,466	31,270	89,515	90,027

Sales from Colombia, Taiwan and Venezuela continued to represent the majority of the new and renewal business premiums in our international business in the three months ended March 31, 2021. Overall, four of our top five countries listed above experienced a decline in premium levels in the current year period due primarily to decreases in renewal premiums. As we discussed above, our in force business, in terms of policy counts and amount of in force insurance, has been declining for several years due to changes we made to our products and distribution over the last few years, which resulted in the pace of new policies issued lagging the number of policies terminated from death, surrender or lapse.

DOMESTIC SALES

Domestic premiums in our Life Insurance segment were $1.2 million and $3.7 million in the three and nine months ended ~~March 31,~~September 30, 2021, ~~down from $1.3~~compared to $1.1 million and $3.7 million, respectively, in the prior year ~~period.~~periods. Our domestic in force business results from blocks of business of insurance companies we have acquired over the years. We discontinued new sales of domestic ordinary whole life and endowment life insurance products within our Life Insurance segment in 2017 while we evaluated our domestic life strategy; therefore, the majority of the premium recorded is related to renewal business.

We began marketing our products again domestically in early 2021, beginning in Florida. We believe that our experience in developing and selling products in Latin America will help us expand into the large Hispanic market in the U.S.

~~March 31,~~September 30, 2021 | 10-Q 3642

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

Net Investment Income. Annualized net investment income in our Life Insurance segment was as follows:


		March 31,			December 31,		March 31,			September 30,			December 31,		September 30,
(In thousands, except for %)	(In thousands, except for %)	2021			2020		2020		(In thousands, except for %)	2021			2020		2020
Net investment income, annualized	Net investment income, annualized	$	46,393		45,885		45,920		Net investment income, annualized	$	47,291		45,885		45,776
Average invested assets, at amortized cost	Average invested assets, at amortized cost	1,107,540			1,071,792		1,057,428		Average invested assets, at amortized cost	1,110,332			1,071,792		1,062,751
Annualized yield on average invested assets	Annualized yield on average invested assets	4.19		%	4.28	%	4.34	%	Annualized yield on average invested assets	4.26		%	4.28	%	4.31	%

Annualized net investment income in our Life Insurance segment increased in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to the same period annualized in 2020 and the twelve months ended December 31, 2020, due to continued growth in average invested ~~assets.~~assets and $0.7 million in non-recurring income as noted previously. The annualized yield in the first ~~three~~nine months of 2021 decreased compared to the same period in 2020 and from December 31, 2020 as ~~a substantial portion of our fixed maturity investments were called or matured during the past year and~~ we ~~face~~have faced challenges in finding investments with ~~comparable~~attractive yields in the continued low interest rate environment. See the Investments section below for more detailed information on our investments.

Realized Investment Gains (Losses), Net. The realized ~~loss for the three months ended March 31, 2021 and the realized~~ gain for the ~~prior year period were~~nine months ended September 30, 2021 was due primarily ~~due~~ to ~~changes~~the change in ~~the~~estimated fair market value ~~of a preferred stock exchange traded fund purchased during the first quarter of 2020.~~for our limited partnerships, as previously discussed.

Claims and Surrenders. The following table shows the claims and surrender benefits paid within the Life Insurance segment for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to the same period in 2020.

~~March 31,~~September 30, 2021 | 10-Q 3743

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020
Claims and Surrenders:	Claims and Surrenders:						Claims and Surrenders:
Death claim benefits	Death claim benefits		$	2,684		1,725	Death claim benefits	$	3,005	1,595	7,538	4,563
Surrender benefits	Surrender benefits		12,251			11,303	Surrender benefits	11,870		15,449	37,099	36,884
Endowment benefits	Endowment benefits		2,399			2,736	Endowment benefits	2,359		2,703	7,006	8,056
Matured endowment benefits	Matured endowment benefits		4,980			3,600	Matured endowment benefits	4,138		4,324	14,607	13,893
Accident and health benefits	Accident and health benefits		21			27	Accident and health benefits	38		34	77	102
Other policy benefits	Other policy benefits		935			769	Other policy benefits	1,155		918	3,039	2,573
Total claims and surrenders	Total claims and surrenders		$	23,270		20,160	Total claims and surrenders	$	22,565	25,023	69,366	66,071

~~The~~During the three and nine months ended September 30, 2021 and 2020, the majority of our claims and surrender benefits in our Life Insurance segment are related to payment of surrender benefits. As previously discussed, surrender benefits have been higher than usual the last several years as many of our policies have reached the age where surrender charges have expired. However, policy surrenders decreased 23.2% and ~~matured endowment benefits. Policy surrenders increased 8.4%~~were basically flat in the three and nine months ended ~~March 31,~~September 30, 2021, respectively, as compared to the prior year ~~period and matured~~periods, as we have instituted new programs to curb surrenders. Matured endowment benefits paid, our next largest claims and surrenders expense, decreased by 4.3% and increased ~~by 38.3% in~~5.1%, respectively, during the current ~~year.~~year periods as compared to the same periods in 2020. These expenses ~~have been increasing over~~are consistent with our expectations, as the last several years, which is expected, due to the aging of this block of business - a significant portion of surrenders relates to policies that have been in force and have little to no associated surrender charges and endowment products are reaching their stated maturities. ~~These expenses are within expected levels.~~In addition, as discussed in Consolidated Results of Operations above, the COVID-19 pandemic has contributed to the higher death claims in the 2021 periods.

Increase in future policy benefit reserves. The ~~other key component of claims~~change in future policy benefit reserves increased 186.2% and ~~surrender benefits is death claim benefits, which increased 55.6% in~~decreased 9.2% for the three and nine months ended ~~March 31,~~September 30, 2021, asrespectively, compared to the ~~prior year period~~same periods in 2020 due to better persistency as discussed above. In addition, the ~~reasons discussed above~~change in ~~“Current Financial Highlights”.~~future policy reserves for the nine months ended September 30, 2021 was lower due to an $0.8 million adjustment for the conversion of a small block of policies to our new actuarial valuation system for our Life Insurance segment during the second quarter.

HOME SERVICE INSURANCE

We operate in the Home Service Insurance market through our subsidiaries SPLIC, MGLIC and SPFIC, and focus on the life insurance and property insurance needs of the middle- and lower-income markets ~~primarily~~ in Louisiana, Mississippi and Arkansas. Premium revenue of ~~89.4%~~89.2% and ~~89.7%~~90.0% in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~ 2020, respectively, were from policyholders living in Louisiana. Our policies are sold and serviced through a home service insurance marketing distribution system of independent agents who work on a debit route system and through funeral homes that sell policies, collect premiums and service policyholders. In June 2021, we added a new whole life product to this market that has higher allowable face values, which we sell through independent consultants.

~~March 31,~~September 30, 2021 | 10-Q 3844

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

The results of operations for the Home Service Insurance segment for the periods indicated are as follows:


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020
Revenues:	Revenues:						Revenues:
Premiums	Premiums		$	11,969		11,498	Premiums	$	11,129	11,843	35,786	34,775
Net investment income	Net investment income		3,345			3,332	Net investment income	3,238		3,200	9,826	9,788
Realized investment gains (losses), net	Realized investment gains (losses), net		223			(1,717)	Realized investment gains (losses), net	(36)		388	393	(405)
Other income	Other income		2			18	Other income	1		1	3	19
Total revenues	Total revenues		15,539			13,131	Total revenues	14,332		15,432	46,008	44,177
Benefits and expenses:	Benefits and expenses:						Benefits and expenses:
Insurance benefits paid or provided:	Insurance benefits paid or provided:						Insurance benefits paid or provided:
Claims and surrenders	Claims and surrenders		7,319			6,289	Claims and surrenders	9,251		7,935	22,335	21,090
Increase in future policy benefit reserves	Increase in future policy benefit reserves		1,574			1,325	Increase in future policy benefit reserves	1,519		884	5,326	3,062
Policyholders' dividends	Policyholders' dividends		10			8	Policyholders' dividends	12		7	31	24
Total insurance benefits paid or provided	Total insurance benefits paid or provided		8,903			7,622	Total insurance benefits paid or provided	10,782		8,826	27,692	24,176
Commissions	Commissions		3,926			3,375	Commissions	4,261		3,572	12,590	10,367
Other general expenses	Other general expenses		3,794			4,316	Other general expenses	4,146		4,524	12,024	13,431
Capitalization of deferred policy acquisition costs	Capitalization of deferred policy acquisition costs		(1,424)			(1,088)	Capitalization of deferred policy acquisition costs	(1,825)		(1,380)	(5,220)	(3,483)
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs		835			801	Amortization of deferred policy acquisition costs	852		570	2,561	2,013
Amortization of cost of insurance acquired	Amortization of cost of insurance acquired		263			250	Amortization of cost of insurance acquired	215		346	680	870
Total benefits and expenses	Total benefits and expenses		16,297			15,276	Total benefits and expenses	18,431		16,458	50,327	47,374
Loss before federal income tax expense	Loss before federal income tax expense		$	(758)		(2,145)	Loss before federal income tax expense	$	(4,099)	(1,026)	(4,319)	(3,197)

~~Premiums.~~ ~~Premiums~~Total revenue declined by 7.1% and increased by 4.1% in the three and nine months ended ~~March 31,~~September 30, 2021, respectively, compared to the same ~~period~~periods in ~~2020, with~~2020. The changes were primarily due to increases in both first year premiums and renewal premiums ~~despite the continuing effects of the COVID-19 pandemic~~ in ~~the states in which this segment operates. First year premiums increased due to an automatic issue product we offered to existing policyholders, which resulted in a higher number of~~life policies, ~~issued as well as lower~~offset by negative property premiums in the ~~prior year~~current three-month period due to the ~~onset~~impact of Hurricane Ida. First year life premiums increased due mainly to the ~~COVID-19 pandemic and stay-at-home orders,~~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 ~~negatively impacted our business.~~has a higher maximum face value. Renewal premiums increased ~~based on continued~~during the nine months ended September 30, 2021 due to improvements in our collection and payment processes, strong ~~collections~~collection efforts by our independent ~~agents.~~

~~Net Investment Income.~~ ~~Net investment~~agents and our insureds' increased disposable income ~~for the three months ended March 31, 2021 increased slightly compared~~due to government stimulus and assistance programs related to the ~~same~~COVID-19 pandemic. Sales during the 2020 period ~~in 2020 due to an increase in average invested assets and a one-time benefit from a “make-whole” call redemption offsetting a decline in portfolio yield.~~

~~Realized Investment Gains (Losses), Net.~~ ~~Changes in realized gains/losses, which reflect changes in fair values of our equity securities,~~ were ~~primarily due to the sudden stock market decline at the quarter ended March 31, 2020 due to the onset of~~negatively impacted by the COVID-19 pandemic.

~~March 31,~~September 30, 2021 | 10-Q 3945

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

Claims and Surrenders. Claims and surrender benefits, ~~for~~which are the largest portion of our expenses in the Home Service Insurance segment, isare summarized as follows:


		Three Months Ended			Three Months Ended					Nine Months Ended
		March 31,			September 30,					September 30,
(In thousands)	(In thousands)		2021			2020	(In thousands)	2021		2020	2021	2020
Claims and Surrenders:	Claims and Surrenders:						Claims and Surrenders:
Death claim benefits	Death claim benefits		$	6,256		4,864	Death claim benefits	$	6,718	6,129	17,669	16,796
Surrender benefits	Surrender benefits		556			752	Surrender benefits	565		682	1,672	1,977
Endowment benefits	Endowment benefits		2			3	Endowment benefits	1		3	6	8
Matured endowment benefits	Matured endowment benefits		142			153	Matured endowment benefits	138		151	453	483
Property claims	Property claims		321			487	Property claims	1,765		966	2,401	1,769
Accident and health benefits	Accident and health benefits		38			26	Accident and health benefits	60		(1)	123	45
Other policy benefits	Other policy benefits		4			4	Other policy benefits	4		5	11	12
Total claims and surrenders	Total claims and surrenders		$	7,319		6,289	Total claims and surrenders	$	9,251	7,935	22,335	21,090

The ~~vast~~ majority of claims and surrender benefits in our Home Service Insurance segment relate to death claim benefits. Death claim benefits increased ~~28.6%~~9.6% and 5.2% in the three and nine months ended ~~March 31,~~September 30, 2021, respectively, compared to the 2020 ~~period due~~periods. The increase during the first nine months of the year compared to the ~~reasons~~same period last year was due primarily to COVID-19 related deaths as discussed ~~above in “Current Financial Highlights”.~~above. Mortality experience is closely monitored by the Company as a key performance indicator and ~~can fluctuate~~fluctuates from quarter-to-quarter based on reported claims. As discussed above, property claims were higher due to Hurricane Ida.

Increase in future policy benefit reserves. The increase in reserves was higher during the three and nine months ended September 30, 2021 compared to the same period last year due to higher sales and improved retention in 2021.

Other general expenses. Other general expenses decreased for the three and nine months ended September 30, 2021 due to changes we made to our distribution structure in the prior year.

OTHER NON-INSURANCE ENTERPRISES


		Three Months Ended				Three Months Ended			Nine Months Ended
		March 31,				September 30,			September 30,
(In thousands)	(In thousands)	2021		2020	(In thousands)	2021		2020	2021	2020
Income (loss) before income tax expense	Income (loss) before income tax expense	$	(1,884)	(2,176)	Income (loss) before income tax expense	$	(314)	(12,653)	(4,263)	(16,484)

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 segment loss. Revenue in this operating unit consists primarily of net investment income and realized investment gains or losses, while expenses consist of other general ~~expenses.~~expenses related to corporate functions. In the three and nine months ended ~~March 31,~~September 30, 2021, the Other Non-Insurance Enterprises had a loss of ~~$1.9~~$0.3 million and $4.3 million, respectively, compared to a loss of ~~$2.2~~$12.7 million and $16.5 million for the ~~three months ended~~same periods 2020, as ~~realized investment gains improved.~~other general expenses decreased in the current year periods due to the change of control expenses paid in 2020, as previously discussed. The Company also sold its former training facility located near Austin, Texas during the third quarter 2021, resulting in a gain on the sale of $1.0 million.

September 30, 2021 | 10-Q 46

Table of Contents ��


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

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.~~success. Our cash and invested assets at ~~March 31,~~September 30, 2021 were $1.6 billion, of which ~~90.8%~~89.7% 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, cash equivalents and the percentage of each to total cash and invested assets.


Carrying Value	September 30, 2021				December 31, 2020
(In thousands, except for %)	Amount		%		Amount		%
Cash, Cash Equivalents and Invested Assets
Fixed maturity securities:
U.S. Treasury and U.S. Government-sponsored enterprises	$	12,850	0.8	%	$	16,117	1.0	%
Corporate	881,342		54.2	%	877,208		52.8	%
States and political subdivisions (1)	382,322		23.6	%	409,665		24.7	%
Mortgage-backed (2)	134,522		8.3	%	140,184		8.5	%
Asset-backed	45,546		2.8	%	46,091		2.8	%
Foreign governments	112		—	%	118		—	%
Total fixed maturity securities	1,456,694		89.7	%	1,489,383		89.8	%

Cash and cash equivalents	30,087		1.9	%	34,131		2.1	%
Other investments:
Policy loans	80,102		4.9	%	83,318		5.0	%
Equity securities	22,335		1.4	%	22,102		1.3	%

Real estate and other long-term investments	34,013		2.1	%	29,865		1.8	%
Total cash, cash equivalents and invested assets	$	1,623,231	100.0	%	$	1,658,799	100.0	%

(1) Includes $159.4 million and $164.0 million of securities guaranteed by third parties at September 30, 2021 and December 31, 2020, respectively.

(2) Includes $134.4 million and $139.8 million of U.S. Government-sponsored enterprises at September 30, 2021 and December 31, 2020, respectively.

The carrying value of the Company’s fixed maturity securities investment portfolio at both September 30, 2021 and December 31, 2020 was $1.5 billion. The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of September 30, 2021 did not materially change from December 31, 2020 – the weighted average was “A” at both dates. Our portfolio mix did not materially change during the nine months.

Cash and cash equivalents decreased as of September 30, 2021 from December 31, 2020due primarily to the purchase of 100% of the Company’s Class B common stock from the Foundation for $9.1 million, offset by cash from matured investments that we are holding as we search for suitable investments in the ongoing low interest rate environment.

Real estate and other long-term investments increased by $4.1 million as of September 30, 2021 from December 31, 2020. Although we paid $8.8 million from a Rabbi Trust (which was considered a long-term investment) to our former Chief Executive Officer in February 2021 and completed the sale of our former training facility in July 2021, investments in our limited partnerships, which are considered long-term investments, increased by $20.7 million in 2021.

~~March 31,~~September 30, 2021 | 10-Q 4047

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

~~The following table shows the carrying value of our investments by investment category and cash and the percentage of each to total cash and invested assets.~~

Carrying Value March 31, 2021 December 31, 2020
(In thousands, except for %) Amount % Amount %
Cash and Invested Assets
Fixed maturity securities:
U.S. Treasury and U.S. Government-sponsored enterprises $ 15,538 1.0 % $ 16,117 1.0 %
Corporate 834,790 53.4 % 877,208 52.8 %
States and political subdivisions (1)
393,859 25.2 % 409,665 24.7 %
Mortgage-backed (2)
132,146 8.4 % 140,184 8.5 %
Asset-backed 44,138 2.8 % 46,091 2.8 %
Foreign governments 116 — % 118 — %
Total fixed maturity securities 1,420,587 90.8 % 1,489,383 89.8 %
Cash and cash equivalents 19,493 1.2 % 34,131 2.1 %
Other investments:
Policy loans 82,674 5.3 % 83,318 5.0 %
Equity securities 22,366 1.4 % 22,102 1.3 %
Real estate and other long-term investments 19,918 1.3 % 29,865 1.8 %
Total cash and invested assets $ 1,565,038 100.0 % $ 1,658,799 100.0 %

~~(1)~~ ~~Includes $161.8 million and $164.0 million of securities guaranteed by third parties at March 31, 2021 and December 31, 2020, respectively.~~

~~(2)~~ ~~Includes $132.0 million and $139.8 million of U.S. Government-sponsored enterprises at March 31, 2021 and December 31, 2020, respectively.~~

The carrying value of the Company’s fixed maturity securities investment portfolio at March 31, 2021 was $1.4 billion. The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, 2021 did not materially change from December 31, 2020 – the weighted average was “A” at both dates.

~~Cash and cash equivalents decreased as of March 31, 2021 compared to December 31, 2020due primarily to the purchase of 100% of the Company’s Class B common stock from the Foundation for $9.1 million.~~

Real estate and other long-term investments decreased to $19.9 million as of March 31, 2021 as compared to $29.9 million as of December 31, 2020 primarily due a $8.8 million payment from a Rabbi Trust (which was considered a long-term investment) to our former Chief Executive Officer, Geoffrey Kolander, representing the severance payments due to him in connection with his resignation following the change in control.

Obligations of States and Political Subdivisions

The Company’s fixed maturity securities investment portfolio at ~~March 31,~~September 30, 2021 and December 31, 2020 included ~~$393.9~~$382.3 million and $409.7 million, respectively, of securities that are obligations of states and political subdivisions, including municipalities (collectively referred to as the municipal bond portfolio).

~~March 31, 2021 | 10-Q 41~~

~~Table of Contents~~


~~CITIZENS, INC.~~			~~MANAGEMENT'S DISCUSSION & ANALYSIS~~

~~As of March 31, 2021, the~~The Company's municipal bond portfolio ~~included~~includes third-party guarantees. Detailed below is a presentation by the Nationally Recognized Statistical Rating Organization ("NRSRO") rating of these holdings by funding type as of ~~March 31,~~September 30, 2021.


		General Obligation			Special Revenue		Other		Total		% Based on Amortized Cost			General Obligation			Special Revenue		Other		Total		% Based on Amortized Cost
(In thousands, except for %)	(In thousands, except for %)	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost			(In thousands, except for %)	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost
State and political subdivision fixed maturity securities including third-party guarantees	State and political subdivision fixed maturity securities including third-party guarantees												State and political subdivision fixed maturity securities including third-party guarantees
AAA	AAA	$	21,343	20,768	3,307	3,091	—	—	24,650	23,859	6.4	%	AAA	$	20,475	19,627	3,338	3,082	—	—	23,813	22,709	6.4	%
AA	AA	63,196		59,413	123,848	118,507	12,191	10,838	199,235	188,758	50.9	%	AA	52,126		48,217	120,994	113,482	12,144	10,829	185,264	172,528	48.8	%
A	A	14,779		13,429	125,958	117,391	5,017	4,417	145,754	135,237	36.5	%	A	19,949		18,384	116,059	105,161	5,059	4,413	141,067	127,958	36.2	%
BBB	BBB	3,952		3,669	13,330	12,987	1,511	1,450	18,793	18,106	4.9	%	BBB	3,410		3,062	13,573	12,956	1,536	1,450	18,519	17,468	4.9	%
BB and other	BB and other	4,758		4,428	669	607	—	—	5,427	5,035	1.3	%	BB and other	4,734		4,417	8,925	8,573	—	—	13,659	12,990	3.7	%
Total	Total	$	108,028	101,707	267,112	252,583	18,719	16,705	393,859	370,995	100.0	%	Total	$	100,694	93,707	262,889	243,254	18,739	16,692	382,322	353,653	100.0	%

State and political subdivision fixed maturity securities excluding third-party guarantees	State and political subdivision fixed maturity securities excluding third-party guarantees												State and political subdivision fixed maturity securities excluding third-party guarantees
AAA	AAA	$	3,248	3,156	—	—	—	—	3,248	3,156	0.9	%	AAA	$	2,599	2,542	—	—	—	—	2,599	2,542	0.7	%
AA	AA	43,591		42,435	43,473	41,198	7,633	6,538	94,697	90,171	24.3	%	AA	35,124		33,418	48,383	44,934	7,517	6,530	91,024	84,882	24.0	%
A	A	28,833		26,827	159,425	149,410	7,914	7,145	196,172	183,382	49.4	%	A	31,269		29,189	140,815	128,797	7,988	7,142	180,072	165,128	46.7	%
BBB	BBB	7,250		6,662	35,561	34,211	56	55	42,867	40,928	11.0	%	BBB	6,743		6,051	36,008	33,945	57	55	42,808	40,051	11.3	%
BB and other	BB and other	25,106		22,627	28,653	27,764	3,116	2,967	56,875	53,358	14.4	%	BB and other	24,959		22,507	37,683	35,578	3,177	2,965	65,819	61,050	17.3	%
Total	Total	$	108,028	101,707	267,112	252,583	18,719	16,705	393,859	370,995	100.0	%	Total	$	100,694	93,707	262,889	243,254	18,739	16,692	382,322	353,653	100.0	%

The table below shows the categories in which the Company held investments in special revenue bonds that were greater than 10% of fair value based upon the Company's municipal bond portfolio at ~~March 31,~~September 30, 2021.


(In thousands)	(In thousands)	Fair Value		Amortized Cost	% of Total Fair Value		(In thousands)	Fair Value		Amortized Cost	% of Total Fair Value

Education	Education	$	70,289	66,134	17.9	%	Education	$	69,879	65,080	18.3	%
Utilities	Utilities	65,579		59,591	16.7	%	Utilities	66,842		59,940	17.5	%
Transportation	Transportation	39,432		38,709	10.0	%	Transportation	39,530		37,917	10.3	%

The Company's municipal bond portfolio ~~are~~is spread across many states, however, municipal bonds from Texas and California comprise the most significant concentration of the total municipal bond portfolio as of ~~March 31,~~September 30, 2021. The Company holds ~~21.1%~~21.7% and ~~10.0%~~10.4% of its municipal bond portfolio in Texas and California issuers, respectively, as of ~~March 31,~~September 30, 2021. There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal bond portfolio as of ~~March 31,~~September 30, 2021.

~~March 31,~~September 30, 2021 | 10-Q 4248

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

The table below represents the Company's detailed exposure to municipal bond portfolio in Texas at ~~March 31,~~September 30, 2021.


March 31, 2021		General Obligation			Special Revenue		Other		Total
September 30, 2021											September 30, 2021	General Obligation			Special Revenue		Other		Total
(In thousands)	(In thousands)	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	(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	Texas state and political subdivision fixed maturity securities including third-party guarantees										Texas state and political subdivision fixed maturity securities including third-party guarantees
AAA	AAA	$	20,757	20,259	3,307	3,091	—	—	24,064	23,350	AAA	$	19,893	19,119	3,338	3,082	—	—	23,231	22,201
AA	AA	21,754		21,407	13,426	12,811	56	55	35,236	34,273	AA	21,564		20,843	13,556	12,788	57	55	35,177	33,686
A	A	—		—	21,385	21,849	—	—	21,385	21,849	A	—		—	22,003	21,838	—	—	22,003	21,838
BBB	BBB	—		—	1,905	1,827	—	—	1,905	1,827	BBB	—		—	1,975	1,826	—	—	1,975	1,826
BB and other	BB and other	—		—	554	508	—	—	554	508	BB and other	—		—	542	506	—	—	542	506
Total	Total	$	42,511	41,666	40,577	40,086	56	55	83,144	81,807	Total	$	41,457	39,962	41,414	40,040	57	55	82,928	80,057
Texas state and political subdivision fixed maturity securities excluding third-party guarantees	Texas state and political subdivision fixed maturity securities excluding third-party guarantees										Texas state and political subdivision fixed maturity securities excluding third-party guarantees
AAA	AAA	$	3,248	3,156	—	—	—	—	3,248	3,156	AAA	$	2,599	2,542	—	—	—	—	2,599	2,542
AA	AA	32,080		31,541	3,299	3,061	—	—	35,379	34,602	AA	31,682		30,476	3,252	3,042	—	—	34,934	33,518
A	A	5,985		5,818	28,939	29,020	—	—	34,924	34,838	A	5,988		5,796	29,576	29,002	—	—	35,564	34,798
BBB	BBB	1,198		1,151	5,483	5,207	56	55	6,737	6,413	BBB	1,188		1,148	5,624	5,202	57	55	6,869	6,405
BB and other	BB and other	—		—	2,856	2,798	—	—	2,856	2,798	BB and other	—		—	2,962	2,794	—	—	2,962	2,794
Total	Total	$	42,511	41,666	40,577	40,086	56	55	83,144	81,807	Total	$	41,457	39,962	41,414	40,040	57	55	82,928	80,057

The table below represents the Company's detailed exposure to municipal bond portfolio in California at ~~March 31,~~September 30, 2021.


March 31, 2021		General Obligation			Special Revenue		Other		Total
September 30, 2021											September 30, 2021	General Obligation			Special Revenue		Other		Total
(In thousands)	(In thousands)	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	(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	California state and political subdivision fixed maturity securities including third-party guarantees										California state and political subdivision fixed maturity securities including third-party guarantees
AAA		$	—	—	—	—	—	—	—	—

AA											AA	$	—	—	25,656	24,227	2,929	2,729	28,585	26,956
A											A	1,655		1,650	4,909	4,714	—	—	6,564	6,364
BBB											BBB	—		—	4,794	4,658	—	—	4,794	4,658

Total											Total	$	1,655	1,650	35,359	33,599	2,929	2,729	39,943	37,978
California state and political subdivision fixed maturity securities excluding third-party guarantees											California state and political subdivision fixed maturity securities excluding third-party guarantees

AA	AA	1,681		1,650	25,068	24,333	2,898	2,728	29,647	28,711	AA	$	1,655	1,650	2,698	2,632	—	—	4,353	4,282
A	A	—		—	4,682	4,726	—	—	4,682	4,726	A	—		—	10,764	10,284	2,929	2,729	13,693	13,013
BBB	BBB	—		—	4,888	4,669	—	—	4,888	4,669	BBB	—		—	8,403	7,860	—	—	8,403	7,860
BB and other	BB and other	—		—	—	—	—	—	—	—	BB and other	—		—	13,494	12,823	—	—	13,494	12,823
Total	Total	$	1,681	1,650	34,638	33,728	2,898	2,728	39,217	38,106	Total	$	1,655	1,650	35,359	33,599	2,929	2,729	39,943	37,978
California state and political subdivision fixed maturity securities excluding third-party guarantees
AAA		$	—	—	—	—	—	—	—	—
AA		1,681		1,650	2,664	2,632	—	—	4,345	4,282
A		—		—	10,496	10,294	2,898	2,728	13,394	13,022
BBB		—		—	8,521	7,970	—	—	8,521	7,970
BB and other		—		—	12,957	12,832	—	—	12,957	12,832
Total		$	1,681	1,650	34,638	33,728	2,898	2,728	39,217	38,106

~~March 31,~~September 30, 2021 | 10-Q 4349

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY AND EQUITY SECURITIES

For the three and nine months ended ~~March 31,~~September 30, 2021 and 2020, the Company recorded no credit valuation losses on fixed maturity securities.

Information on both unrealized and realized gains and losses by category is set forth in Part I, Item 1, Note 5. Investments of the notes to our consolidated financial statements herein.

LIQUIDITY AND CAPITAL RESOURCES

Although the Company experienced increased death claim benefits in the first three months of 2021, we do not believe that the Company's liquidity and capital resources were materially impacted by COVID-19 in the period. For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see Part I, Item 1A, Risk Factors in the Company's ~~Form 10-K~~.

Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations. 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 expect to meet our cash needs for the next 12 months with cash generated by our insurance operations and from our invested assets. At ~~March 31,~~September 30, 2021, we had ~~$19.5~~$30.1 million in cash and cash equivalents and ~~$1.5~~$1.6 billion in invested assets.

PARENT COMPANY LIQUIDITY AND CAPITAL RESOURCES

~~Liquidity is the ability to generate amounts of cash adequate to meet our cash needs.~~ 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 Citizens receives from service agreements with our life insurance subsidiaries and dividends from the subsidiaries. The ability to make payments to the holding company is limited by applicable laws and regulations of Bermuda and U.S. states of domicile which subject insurance operations to significant regulatory restrictions. These laws and regulations require, among other things, that our insurance subsidiaries maintain minimum solvency 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 unregulated holding company.

~~Our cash and cash equivalents decreased from $34.1 million at December 31, 2020~~In addition to ~~$19.5 million at March 31, 2021. In~~ the ~~three months ended March 31, 2021, uses~~above-mentioned sources of cash, ~~included:~~we offer a Stock Investment Plan ("SIP"), whereby investors, policyholders, independent contractors and agents, employees and directors can 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.

•$8.8 million severance payment to our former Chief Executive Officer, Geoffrey Kolander, following his resignation pursuant to the terms of his employment agreement and the Chief Executive Officer Separation of Service and Consulting Agreement dated July 29, 2020 (See Part I, Item 1, ~~Note 6~~.~~Fair Value Measurements~~ ~~– "Other Long-Term Investments”, herein, and our~~ ~~Form 10-K~~ ~~for additional discussion about the severance payment to Mr. Kolander); and~~

•~~$9.1 million payment to the Harold E. Riley Foundation ("Foundation") for the purchase of 100% of the outstanding Class B common stock.~~

~~See Part I, Item 1,~~ ~~Note 11. Subsequent Events~~ ~~in the notes to our consolidated financial statements herein.~~

On May 5, 2021, we entered into a Credit Facility with Regions Bank. See Part I, Item 1, Note 7 .7. 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 and longer-term needs. As of September 30, 2021, we have not borrowed any money under the Credit Facility and have no immediate plans to do so.

INSURANCE COMPANY SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES

The liquidity requirements of our insurance operations are primarily met by premium revenues, investment income and investment maturities or sales. Primary cash needs relate to payments of policyholder benefits, investment purchases and operating expenses. Historically, we have not had to liquidate a material amount of investments to provide cash flow for our insurance operations and we did not do so in the nine months ended September 30, 2021. We believe that we have adequate capital resources to support the liquidity requirements of our insurance operations if the cash flow from our insurance operations is insufficient to meet our cash needs. See Contractual Obligations and Off-balance Sheet Arrangements in our Form 10-K and below for a discussion of known and estimated cash needs.

~~March 31,~~September 30, 2021 | 10-Q 4450

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

~~The Credit Facility provides additional liquidity to~~In the ~~Company for short-term and longer-term needs. As of May 5, 2021, we had not borrowed any money under the Credit Facility and do not expect to do so immediately.~~

~~INSURANCE COMPANY SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES~~

The liquidity requirements of our insurance operations are primarily met by premium revenues, investment income and investment maturities. Primary cash needs relate to payments of policy benefits to policyholders, investment purchases and operating expenses. Historically, we have not had to liquidate a material amount of investments to provide cash flow for our insurance operations and we did not do so in the threenine months ended March 31, 2021. We believe that we have adequate capital resources to support the liquidity requirements of our insurance operations if the cash flow from our insurance operations is insufficient to meet our cash needs. See Contractual Obligations and Off-balance Sheet Arrangements in our ~~Form 10-K~~ ~~for a discussion of known and estimated cash needs.~~

~~In the three months ended March 31,~~September 30, 2021, our operations provided ~~$1.8~~$23.8 million in net cash as compared to ~~$14.1~~$34.0 million provided by operations in the same period in 2020. As ~~mentioned above,~~previously disclosed, we used $8.8 million in cash in the first quarter of 2021 to pay ~~Mr. Kolander’s severance.~~a contractually obligated severance to our former CEO. Cash provided by operations was also lower, as ~~surrenders and lower~~first year premiums continued to be outpaced by decreased renewal premiums in our international ~~business are not being replaced~~business. Additionally, increased first year premiums, which have higher costs associated with them than renewal premiums, such as commissions, led to lower cash provided by ~~new sales.~~operations. We have traditionally also had significant cash flows from investing activities due to both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows, for the most part, are reinvested in ~~fixed income securities and to a lesser extent private equity funds and other alternative~~new investments. Net cash used in investing activities totaled ~~$7.4~~$19.4 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as opposed to ~~$26.2~~$39.2 million used in investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The investing activities fluctuate from period to period due to timing of securities activities such as calls and maturities and reinvestment of those funds. Cash used in financing activities was ~~$9.1~~$8.4 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2021, due primarily to the purchase of 100% of the outstanding Class B common stock from the ~~Foundation.~~Harold E. Riley Foundation for $9.1 million in March 2021.

Because claims and surrender benefits are our largest expense, a primary liquidity concern is the risk of an extraordinary level of early policyholder ~~surrenders. While these expenses increased~~surrenders or higher than expected mortality. Accordingly, we have been aggressively managing policyholder retention efforts and in the ~~three~~nine months ended ~~March 31,~~September 30, 2021, ~~and have~~surrender benefits slightly decreased. Prior to this year, surrender benefits had been increasing ~~over the last several years, the increases are within expected levels~~ due ~~to the aging of this block of business - a significant portion of surrenders relates~~ to policies that have been in force and have little to no associated surrender charges and endowment products reaching their stated maturities.

~~For reasons previously discussed, death claim benefits in our Home Service Insurance segment~~ Death claims also increased in 2021 for the ~~first quarter~~reasons discussed above, which included payment of ~~2021.~~COVID related death claims that materially impacted our operations. We continue to closely monitor claim volumes to evaluate whether there is a delay in reporting or filing for benefits as a result of the COVID-19 pandemic.

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 parental guarantee between Citizens and CICA, Citizens' wholly-owned subsidiary domiciled in Colorado, to maintain a RBC level above 350%. At ~~March 31,~~September 30, 2021, our domestic insurance subsidiaries were above the required minimum RBC levels.

CICA Ltd. is a Bermuda domiciled company. The BMA requires Bermuda insurers to maintain available statutory economic capital and surplus at a level equal to or in excess of the BMA's Enhanced Capital Requirement, which

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~~CITIZENS, INC.~~			~~MANAGEMENT'S DISCUSSION & ANALYSIS~~

requires a certain Target Capital Level ("TCL"). As of ~~March 31,~~September 30, 2021, CICA Ltd. was above the TCL threshold. At the request of the BMA, on April 15, 2021, Citizens and CICA Ltd. entered into a Keep Well Agreement. The Keep Well Agreement requires Citizens to contribute up to $10 million in capital to CICA Ltd. as necessary to ensure that CICA Ltd. has a minimum capital level of 120%. Since CICA Ltd.’s capital level currently exceeds 120%, Citizens is not currently required to make a capital contribution. Any capital injection that Citizens is required to make under the parental guarantee with CICA or under the Keep Well Agreement with CICA Ltd. could negatively impact the Company’s capital resources and liquidity.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

As of ~~March 31,~~September 30, 2021, ~~the Company is committed to fund investments up to $68.5 million related to private equity funds and other investments. There~~we have ~~been~~ no ~~other material changes in~~additional contractual obligations ~~from~~or off-balance sheet arrangements other than those described in Part I. Item 1, Note 7. Commitments and Contingencies in the notes to our consolidated

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CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

financial statements herein and in Part II, Item 7, Contractual Obligations and Off-Balance Sheet Arrangements in our Form 10-K. ~~The Company does not have off-balance sheet arrangements at March 31, 2021.~~ We do not utilize special purpose entities as investment vehicles, nor are there any such entities in which we have an investment that engage in speculative activities of any nature, and we do not use such investments to hedge our investment positions.

~~CRITICAL ACCOUNTING POLICIES~~

We believe that the accounting policies set forth in Part I, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - "Critical Accounting Policies" and Part IV, Item 15, Note 1. Summary of Significant Accounting Policies of our consolidated financial statements in our ~~Form 10-K~~ ~~continue to describe the significant judgments and estimates used in the preparation of our consolidated financial statements.~~

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~~CITIZENS, INC.~~

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

GENERAL

For the Company’s disclosures about market risk, please see Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our Form 10-K. Except as set forth below, there have been no material changes to the Company’s disclosures about market risk in Part II, Item 7A. of our Form 10-K. For additional information regarding market risks to which we are subject, see Part I, Item 1, Note 5. Investments - "Valuation of Investments" in the notes to our consolidated financial statements herein.

MARKET RISK RELATED TO INTEREST RATES

Our exposure to interest rate changes results from our significant holdings of fixed maturity investments, which comprised ~~90.8%~~89.7% of our investment portfolio based on carrying value as of ~~March 31,~~September 30, 2021. These investments are mainly exposed to changes in U.S. Treasury rates. Changes in interest rates typically have a sizable effect on the fair values of our fixed maturity securities. The interest rate of the ten-year U.S. Treasury bond increased to ~~1.74%~~1.52% at ~~March 31,~~September 30, 2021 from 0.93% at December 31, 2020. Net unrealized gains on fixed maturity securities totaled ~~$88.0~~$132.4 million at ~~March 31,~~September 30, 2021, compared to $167.9 million at December 31, 2020, based upon bond interest rates in relation to the U.S. ten-year Treasury yield.

To manage interest risk, we perform periodic projections of asset and liability cash flows to evaluate the potential sensitivity of our investments and liabilities. We assess interest rate sensitivity annually with respect to our AFS fixed maturity securities investments using hypothetical test scenarios that assume either upward or downward shifts in the prevailing interest rates. The changes in fair values of our fixed maturity securities as of ~~March 31,~~September 30, 2021 were within the expected range of this analysis.

There are no fixed maturity securities or other investments classified as trading instruments. All of the Company's fixed maturity securities were classified as AFS at ~~March 31,~~September 30, 2021. At ~~March 31,~~September 30, 2021 and December 31, 2020, we had no investments in derivative instruments or subprime loans.

Item 4. CONTROLS AND PROCEDURES

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 ~~March 31,~~September 30, 2021. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this quarterly report.

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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the three months ended ~~March 31,~~September 30, 2021, there were no changes in the Company's internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

CRITICAL ACCOUNTING POLICIES

We believe that the accounting policies set forth in Part I, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - "Critical Accounting Policies" and Part IV, Item 15, Note 1. Summary of Significant Accounting Policies of our consolidated financial statements in our Form 10-K continue to describe the significant judgments and estimates used in the preparation of our consolidated financial statements.

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CITIZENS, INC.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Part I, Item 3, Legal Proceedings of our Form 10-K ~~for~~includes a discussion of our legal proceedings. There have been no material developments in the three and nine months ended ~~March 31,~~September 30, 2021 from the legal proceedings described in our Form 10-K. except as follows:

On September 14, 2021, the Company won a victory in its trade secret theft suit against Randall Riley, Alexis Delgado and certain of his co-agents, and First Trinity Financial Corporation (“First Trinity”) when the Travis County District Court (the “Court”) denied Defendants’ traditional and no evidence Motion for Partial Summary Judgment (“Defendants’ Motion”) in its entirety. Defendants Motion claimed that the Company should not be able to proceed with our claims against Defendants for unfair competition, tortious interference with contract, conspiracy and unjust enrichment, because they “have no evidence to support these theories.”

With respect to these claims, our lawsuit claims that:

•Riley and First Trinity tortiously interfered with Citizens’ contracts with its agents and that they “willfully and intentionally” induced the agents to breach those contracts by disclosing Citizens’ confidential information;

•Defendants wrongfully secured benefits from Citizens and thus Citizens is entitled to those benefits (unjust enrichment);

•Defendants stole Citizens’ information in order to unfairly compete with us; and

•Defendants conspired to achieve the theft of Citizens’ trade secrets.

By denying Defendants’ Motion in its entirety, we can proceed to trial with all of the claims described above.

Further, on September 28, 2021, the Court ruled in our favor on motions for summary judgment filed by five of the defendants. Specifically, the court:

•Denied the requests of Alexis Enrique Delgado, Enrique Pinzon Ruiz, and Esperanza Peralta de Delgado to be dismissed from the lawsuit. These individuals were independent consultants who were terminated by the Company for cause due to the facts alleged in this lawsuit.

•Denied Michael Buchweitz’s request that the claim against him for breach of his confidentiality agreement be dismissed. Mr. Buchweitz is a former underwriter for Citizens.

•Denied Jonathan Pollio’s request that the claim against him for breach of his confidentiality agreement be dismissed. Mr. Pollio is a former actuary for Citizens.

We have alleged that the above defendants conspired with Randall Riley and First Trinity to steal our trade secrets and unfairly compete with us, including by using a confusingly similar name and logo. The court denied the motions of Delgado, Ruiz, Delgado, Buchweitz and Pollio in their entireties, allowing us to proceed with all of the claims against each of them.

While the court allowed the CEO and CFO of First Trinity to be dismissed individually from the lawsuit, the ruling does not affect Citizens’ claims against First Trinity described above.

Trial in the lawsuit is set for February 2022.

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CITIZENS, INC.

Item 1A. RISK FACTORS

Part I, Item 1A, Risk Factors of our Form 10-K includes a discussion of our risk factors. There have been no material changes in the three and nine months ended ~~March 31,~~September 30, 2021 from the risk factors included in our Form 10-K. other than those noted below.

Climate Change and Impact on Natural Catastrophes

SPFIC sells property insurance policies in Louisiana and is licensed to sell in Arkansas. The vast majority of SPFIC’s claims have arisen out of natural catastrophes such as Hurricane Laura and most recently, Hurricane Ida, a category 4 hurricane that hit the coast of Louisiana in August 2021. Climate change, including rising temperatures and changes in weather patterns could impact storm frequency and severity in our coverage areas, which could materially impact Citizens' financial performance as the volume and severity of claims also continues to rise. Furthermore, since we obtain catastrophic storm reinsurance, storm frequency could cause us to have to obtain additional reinsurance, which negatively impacts our premium revenue. Since we operate in a highly regulated and competitive environment, we may not be able to raise our rates sufficiently to recoup our losses. Additionally, the volume and severity of storms increases the risks of writing property insurance in coastal areas, which could cause us to change our business model, negatively impacting our revenue and earnings.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

~~None.~~On November 3, 2021, Citizens, Inc. entered into an Executive Change in Leadership Agreement (the “Agreement”) with its Chief Financial Officer, Jeffery P. Conklin, and each of the following executive officers: Sheryl Kinlaw, Robert M. Mauldin III and Harvey J. L. Waite (each, an “Executive” and collectively, the “Executives”). The Compensation Committee of the Board of Directors of the Company determined that the Agreement would, among other things, help retain key leadership as the Company continues its search for and ultimately transitions to a new chief executive officer. Capitalized terms used in this Part II, Item 5 but not defined herein shall have the meaning ascribed to them in the Agreement.

The Agreement provides that if within a year of the date of the Agreement: (i) either (a) Gerald W. Shields, the interim President and Chief Executive Officer, is replaced by a new chief executive officer (a “Change in Leadership”), or (b) there is a Change of Control, and (ii) the Executive is terminated without Cause or the Executive terminates employment with the Company for Good Reason within one year of the Change in Leadership or Change of Control, as applicable, the Executive shall be entitled to a termination payment as follows:

1.reimbursement of six (6) months of COBRA continuation payments under the Company’s group health plan at cost of normal employee rate provided that Executive elects COBRA continuation coverage; and

2.six (6) months of Executive’s then-base monthly compensation; and

3.payment of a bonus to Executive equal to Executive’s target bonus for the year in which Executive is terminated, multiplied by a fraction, the numerator of which is the number of days in the year

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Executive has been employed by the Company and the denominator of which is 365, plus, if executive is terminated before a bonus is paid for a prior fiscal year (e.g., terminated in January of a calendar year), Executive shall receive 100% of Executive’s target bonus for such other prior year if such bonus has not already been paid to Executive as of the date of termination; and

4.the immediate vesting of any outstanding stock grants from the Company to the Executive.

The Termination Payment shall be made to the Executive in a lump sum within 30 days of termination of employment provided Executive signs a release of claims in a form acceptable to the Company on the last day of Executive’s employment with the Company.

The above summary of the Agreement is qualified by reference in its entity to the Agreement, which is attached hereto as Exhibit 10.2, and incorporated herein by reference.

Item 6. EXHIBITS


Exhibit Number						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 February 6, 2021 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on February 9, 2021)
10.1*†						Amendment to Gerald Shields consulting agreement*†
10.2*†						Form of Executive Change in Leadership Agreement entered into by and between the Company and each of the following: Jeffery P. Conklin, Sheryl Kinlaw, Robert M. Mauldin III and Harvey J. L. Waite*†
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*						Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q*
104*						Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set*

* Filed herewith.

† Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		CITIZENS, INC.


		By:	/s/ Gerald W. Shields
			Gerald W. Shields
			Interim Chief Executive Officer & President


		By:	/s/ Jeffery P. Conklin
			Jeffery P. Conklin
			Vice President, Chief Financial Officer & Treasurer



Date:	~~May 5,~~November 4, 2021

~~March 31,~~September 30, 2021 | 10-Q 4957