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, ~~2021~~2022

☐ 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, 2021,~~May 2, 2022, the Registrant had ~~49,603,606~~50,508,640 shares of Class A common stock outstanding and 0 shares of Class B common stock outstanding.

THIS PAGE INTENTIONALLY LEFT BLANK

TABLE OF CONTENTS


			Page Number
Part I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets, March 31, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~2021	2

		Consolidated Statements of Operations and Comprehensive Income (Loss), Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	4

		Consolidated Statements of Stockholders' Equity, Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	5

		Consolidated Statements of Cash Flows, Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	6

		Notes to Consolidated Financial Statements (Unaudited)	8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2725

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4744

	Item 4.	Controls and Procedures	4744

Part II. OTHER INFORMATION

	Item 1.	Legal Proceedings	4845

	Item 1A.	Risk Factors	4845

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4845

	Item 3.	Defaults Upon Senior Securities	4845

	Item 4.	Mine Safety Disclosures	4845

	Item 5.	Other Information	4845

	Item 6.	Exhibits	4845

March 31, ~~2021~~2022 | 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)	March 31, 2022		December 31, 2021
Assets	(Unaudited)
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost: $1,361,254 and $1,343,755 in 2022 and 2021, respectively)	$	1,355,410	1,470,617

Equity securities, at fair value	13,902		14,844

Policy loans	79,345		80,307


Other long-term investments (portion measured at fair value $62,564 and $56,038 in 2022 and 2021, respectively)	63,927		57,399

Total investments	1,512,584		1,623,167
Cash and cash equivalents	21,298		27,294
Accrued investment income	15,755		16,197

Reinsurance recoverable	3,574		5,539
Deferred policy acquisition costs	139,688		140,380
Cost of insurance acquired	10,528		10,611
Current federal income tax receivable	589		762

Property and equipment, net	14,088		14,074
Due premiums	8,971		10,748

Other assets (less allowance for losses of $109 and $111 in 2022 and 2021, respectively)	5,886		5,739
Total assets	$	1,732,961	1,854,511

See accompanying Notes to Consolidated Financial Statements.

March 31, ~~2021~~2022 | 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)	March 31, 2022		December 31, 2021
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	$	1,284,792	1,278,987
Annuities	Annuities	81,003		78,304	Annuities	85,662		83,918
Accident and health	Accident and health	785		761	Accident and health	766		784
Dividend accumulations	Dividend accumulations	33,997		33,336	Dividend accumulations	38,576		37,760
Premiums paid in advance	Premiums paid in advance	41,639		40,605	Premiums paid in advance	40,433		40,690
Policy claims payable	Policy claims payable	13,398		13,206	Policy claims payable	9,659		14,590
Other policyholders' funds	Other policyholders' funds	25,088		22,447	Other policyholders' funds	32,656		30,690
Total policy liabilities	Total policy liabilities	1,446,840		1,435,082	Total policy liabilities	1,492,544		1,487,419
Commissions payable	Commissions payable	2,192		2,572	Commissions payable	1,816		2,285
Current federal income tax payable		45,173		43,916

Deferred federal income tax payable	Deferred federal income tax payable	9,717		9,564	Deferred federal income tax payable	6,577		15,456
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	3,815		—
Other liabilities	Other liabilities	34,816		46,076	Other liabilities	31,307		28,780
Total liabilities	Total liabilities	1,540,813		1,542,475	Total liabilities	1,536,059		1,533,940
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, 53,532,873 and 53,170,413 shares issued and outstanding in 2022 and 2021, respectively, including shares in treasury of 3,135,738 in 2022 and 2021					Class A, no par value, 100,000,000 shares authorized, 53,532,873 and 53,170,413 shares issued and outstanding in 2022 and 2021, respectively, including shares in treasury of 3,135,738 in 2022 and 2021	267,442		265,561
Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2022 and 2021, including shares in treasury of 1,001,714 in 2022 and 2021					Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2022 and 2021, including shares in treasury of 1,001,714 in 2022 and 2021	3,184		3,184
Accumulated deficit	Accumulated deficit	(85,925)		(82,352)	Accumulated deficit	(46,898)		(45,565)
Accumulated other comprehensive income:
Accumulated other comprehensive income (loss):					Accumulated other comprehensive income (loss):
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	(6,725)		117,492
Treasury stock, at cost	Treasury stock, at cost	(11,011)		(11,011)	Treasury stock, at cost	(20,101)		(20,101)
Total stockholders' equity	Total stockholders' equity	240,840		300,945	Total stockholders' equity	196,902		320,571
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,781,653	1,843,420	Total liabilities and stockholders' equity	$	1,732,961	1,854,511

See accompanying Notes to Consolidated Financial Statements.

March 31, ~~2021~~2022 | 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,					Three Months Ended March 31,
(In thousands, except per share amounts)	(In thousands, except per share amounts)		2021		2020	(In thousands, except per share amounts)		2022		2021
Revenues:	Revenues:					Revenues:
Premiums:	Premiums:					Premiums:
Life insurance	Life insurance		$	37,642	39,946	Life insurance		$	37,746	37,642
Accident and health insurance	Accident and health insurance		343		261	Accident and health insurance		286		343
Property insurance	Property insurance		1,047		1,110	Property insurance		1,332		1,047
Net investment income	Net investment income		15,244		15,169	Net investment income		15,487		15,244
Realized investment gains (losses), net			292		(1,306)
Investment related gains (losses), net						Investment related gains (losses), net		(582)		292
Other income	Other income		915		542	Other income		1,088		915
Total revenues	Total revenues		55,483		55,722	Total revenues		55,357		55,483
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		30,589		26,449	Claims and surrenders		28,434		30,589
Increase in future policy benefit reserves	Increase in future policy benefit reserves		5,232		9,471	Increase in future policy benefit reserves		6,569		5,232
Policyholders' dividends	Policyholders' dividends		1,306		1,233	Policyholders' dividends		1,353		1,306
Total insurance benefits paid or provided	Total insurance benefits paid or provided		37,127		37,153	Total insurance benefits paid or provided		36,356		37,127
Commissions	Commissions		8,157		7,853	Commissions		7,673		8,157
Other general expenses	Other general expenses		11,382		11,473	Other general expenses		11,030		11,382
Capitalization of deferred policy acquisition costs	Capitalization of deferred policy acquisition costs		(4,985)		(5,009)	Capitalization of deferred policy acquisition costs		(4,781)		(4,985)
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs		6,183		6,119	Amortization of deferred policy acquisition costs		5,817		6,183
Amortization of cost of insurance acquired	Amortization of cost of insurance acquired		367		368	Amortization of cost of insurance acquired		236		367
Total benefits and expenses	Total benefits and expenses		58,231		57,957	Total benefits and expenses		56,331		58,231
Income (loss) before federal income tax	Income (loss) before federal income tax		(2,748)		(2,235)	Income (loss) before federal income tax		(974)		(2,748)
Federal income tax expense (benefit)	Federal income tax expense (benefit)		825		1,349	Federal income tax expense (benefit)		359		825
Net income (loss)	Net income (loss)		(3,573)		(3,584)	Net income (loss)		(1,333)		(3,573)
Per Share Amounts:	Per Share Amounts:					Per Share Amounts:
Basic and diluted earnings (losses) per share of Class A common stock	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 A common stock		(0.03)		(0.07)
Basic and diluted earnings (losses) per share of Class B common stock	Basic and diluted earnings (losses) per share of Class B common stock		(0.04)		(0.04)	Basic and diluted earnings (losses) per share of Class B common stock		—		(0.04)
Other Comprehensive Income (Loss):	Other Comprehensive Income (Loss):					Other Comprehensive Income (Loss):
Unrealized losses on fixed maturity securities:
Unrealized holding losses arising during period			(55,898)		(42,929)
Unrealized gains (losses) on fixed maturity securities:						Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) arising during period						Unrealized holding gains (losses) arising during period		(133,342)		(55,898)
Reclassification adjustment for losses (gains) included in net income (loss)	Reclassification adjustment for losses (gains) included in net income (loss)		(35)		132	Reclassification adjustment for losses (gains) included in net income (loss)		59		(35)
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)
Unrealized gains (losses) on fixed maturity securities, net						Unrealized gains (losses) on fixed maturity securities, net		(133,283)		(55,933)
Income tax expense (benefit) on unrealized gains (losses) on fixed maturity securities						Income tax expense (benefit) on unrealized gains (losses) on fixed maturity securities		(9,066)		585
Other comprehensive income (loss)						Other comprehensive income (loss)		(124,217)		(56,518)
Total comprehensive income (loss)						Total comprehensive income (loss)		$	(125,550)	(60,091)

See accompanying Notes to Consolidated Financial Statements.

March 31, ~~2021~~2022 | 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, 2021	$	265,561	3,184	(45,565)	117,492	(20,101)	320,571
Comprehensive income (loss):
Net income (loss)	—		—	(1,333)	—	—	(1,333)
Unrealized investment gains (losses), net	—		—	—	(124,217)	—	(124,217)
Total comprehensive income (loss)	—		—	(1,333)	(124,217)	—	(125,550)
Common stock issuance	1,788		—	—	—	—	1,788
Stock-based compensation	93		—	—	—	—	93
Balance at March 31, 2022	$	267,442	3,184	(46,898)	(6,725)	(20,101)	196,902


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)
Balance at December 31, 2020									Balance at December 31, 2020	$	262,869	3,184	(82,352)	128,255	(11,011)	300,945
Comprehensive income (loss):	Comprehensive income (loss):								Comprehensive income (loss):
Net income (loss)	Net income (loss)	0		0	(3,584)	0	0	(3,584)	Net income (loss)	—		—	(3,573)	—	—	(3,573)
Unrealized investment gains (losses), net	Unrealized investment gains (losses), net	0		0	0	(40,070)	0	(40,070)	Unrealized investment gains (losses), net	—		—	—	(56,518)	—	(56,518)
Total comprehensive income (loss)	Total comprehensive income (loss)	0		0	(3,584)	(40,070)	0	(43,654)	Total comprehensive income (loss)	—		—	(3,573)	(56,518)	—	(60,091)
Stock-based compensation	Stock-based compensation	(53)		0	0	0	0	(53)	Stock-based compensation	(14)		—	—	—	—	(14)
Balance at March 31, 2020		$	261,462	3,184	(74,948)	37,047	(11,011)	215,734
Balance at March 31, 2021									Balance at March 31, 2021	$	262,855	3,184	(85,925)	71,737	(11,011)	240,840

See accompanying Notes to Consolidated Financial Statements.

March 31, ~~2021~~2022 | 10-Q 5

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


Three Months Ended March 31, (In thousands)	Three Months Ended March 31, (In thousands)	2021		2020	Three Months Ended March 31, (In thousands)	2022		2021
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)	$	(1,333)	(3,573)
Adjustments to reconcile net gain (loss) to net cash provided by operating activities:
Realized investment (gains) losses on sale of investments and other assets		(292)		1,306
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:
Investment related (gains) losses on sale of investments and other assets					Investment related (gains) losses on sale of investments and other assets	582		(292)
Net deferred policy acquisition costs	Net deferred policy acquisition costs	1,198		1,110	Net deferred policy acquisition costs	1,036		1,198
Amortization of cost of insurance acquired	Amortization of cost of insurance acquired	367		368	Amortization of cost of insurance acquired	236		367
Depreciation	Depreciation	308		70	Depreciation	153		308
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	1,386		1,323
Stock-based compensation	Stock-based compensation	76		193	Stock-based compensation	132		76
Deferred federal income tax expense (benefit)	Deferred federal income tax expense (benefit)	(432)		(280)	Deferred federal income tax expense (benefit)	187		(432)
Change in:	Change in:				Change in:
Accrued investment income	Accrued investment income	275		348	Accrued investment income	442		275
Reinsurance recoverable	Reinsurance recoverable	1,410		444	Reinsurance recoverable	1,965		1,410
Due premiums	Due premiums	1,771		1,045	Due premiums	1,777		1,771
Future policy benefit reserves	Future policy benefit reserves	5,185		9,414	Future policy benefit reserves	6,494		5,185
Other policyholders' liabilities	Other policyholders' liabilities	4,528		2,318	Other policyholders' liabilities	(2,406)		4,528
Federal income tax payable	Federal income tax payable	1,257		1,850	Federal income tax payable	172		1,257
Commissions payable and other liabilities	Commissions payable and other liabilities	(11,317)		(2,865)	Commissions payable and other liabilities	1,489		(11,317)
Other, net	Other, net	(275)		(37)	Other, net	(172)		(275)
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	12,140		1,809
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	(26,050)		(37,294)
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	1,100		4,445
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	10,435		14,376
Purchases of equity securities		0		(4,473)

Principal payments on mortgage loans	Principal payments on mortgage loans	4		4	Principal payments on mortgage loans	2		4

(Increase) decrease in policy loans, net	(Increase) decrease in policy loans, net	644		676	(Increase) decrease in policy loans, net	962		644
Sales of other long-term investments and real estate		15,089		0
Sales of other long-term investments					Sales of other long-term investments	1,681		15,089
Purchases of other long-term investments	Purchases of other long-term investments	(4,619)		(2,810)	Purchases of other long-term investments	(7,940)		(4,619)

Purchases of property and equipment	Purchases of property and equipment	(15)		(5)	Purchases of property and equipment	(34)		(15)
Maturities of short-term investments		0		650

Purchases of short-term investments	Purchases of short-term investments	0		(45)	Purchases of short-term investments	(5)		—

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	(19,849)		(7,370)

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

March 31, ~~2021~~2022 | 10-Q 6

Table of Contents


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)	Three Months Ended March 31, (In thousands)	2021		2020	Three Months Ended March 31, (In thousands)	2022		2021
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	$	2,227	2,431
Annuity withdrawals	Annuity withdrawals	(2,329)		(561)	Annuity withdrawals	(2,263)		(2,329)
Purchase of treasury stock		(9,090)		0
Acquisition of treasury stock					Acquisition of treasury stock	—		(9,090)
Issuance of common stock					Issuance of common stock	1,788		—
Other	Other	(89)		(246)	Other	(39)		(89)
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	1,713		(9,077)
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	(5,996)		(14,638)
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	27,294		34,131
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	$	21,298	19,493

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, various fixed maturity issuers exchanged securities with book values of ~~$2.0~~$0.6 million and ~~$3.1~~$2.0 million, respectively, for securities of equal value.

The Company had $3.8 million net unsettled security trades at March 31, 2022 and $0.7 million at March 31, 2021.

The Company accrued purchases of property and equipment of $0.8 million as of March 31, 2021 ~~which is reflected in other liabilities on the consolidated Balance Sheets~~ and recorded ~~NaN~~none as of March 31, ~~2020.~~2022.

The Company ~~had $0.7~~recognized right-of-use assets of $0.4 million ~~net unsettled security trades at~~in exchange for new operating lease liabilities during the three months ended March 31, ~~2021~~2022 and ~~$3.4 million at~~none during the three months ended March 31, ~~2020.~~2021.

See accompanying Notes to Consolidated Financial Statements.

March 31, ~~2021~~2022 | 10-Q 7

Table of Contents


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."~~International"), Citizens National Life Insurance Company ("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC") and Computing Technology, Inc. ("CTI"). All significant inter-company accounts and ~~interactions~~transactions have been eliminated. Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company", "it", "we", "us" or "our".

The consolidated balance ~~sheets~~sheet as of March 31, ~~2021 and~~2022, the consolidated statements of operations and comprehensive income (loss), and stockholders' equity for the three months ended March 31, 2022 and March 31, 2021 and the consolidated statements of cash flows for the three months ended March 31, ~~2021~~2022 and March 31, ~~2020~~2021 have been prepared by the Company without audit and are not subject to audit. In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at March 31, ~~2021~~2022 and for comparative periods have been made. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission ("SEC"). Accordingly, the consolidated financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 ("Form 10-K"). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Our Life Insurance segment operates through CICA ~~Ltd.,~~International, CICA and CNLIC. Our international life insurance business, which operates through CICA ~~Ltd.,~~International, issues U.S. dollar-denominated endowment contracts internationally, which are principally accumulation contracts that incorporate an element of life insurance protection and ordinary whole life insurance in U.S. dollar-denominated amounts sold to non-U.S. residents. These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional increasing or decreasing coverage and annuity benefits to enhance accumulations. Our domestic life insurance business ~~which~~ operates through CICA and CNLIC. CICA issues credit life and disability policies and CNLIC issues ordinary whole life policies mainly in Texas and Florida and services whole life and accident and health policies primarily ~~focused on living needs and provided benefits toward accumulating financial benefits for~~in the ~~policyowners throughout the~~Southern U.S., 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.~~Mountain West.

Our Home Service Insurance segment operates through our subsidiaries SPLIC, MGLIC and SPFIC, and focuses on the life insurance needs of the middle- and lower-income markets, primarily in Louisiana, Mississippi and Arkansas. Our products in this segment consist primarily of small face amount ordinary whole life, industrial life and pre-need policies, which are designed to fund final expenses for the insured, primarily consisting of funeral and burial costs as well as ~~limited liability, named peril~~ property insurance policies, ~~covering~~which cover dwelling and contents.

CTI provides data processing systems and services to the Company.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

March 31, ~~2021~~2022 | 10-Q 8

Table of Contents


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~~NOT YET ADOPTED

In ~~June 2016,~~August 2018, 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.

~~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

•Requires enhanced disclosures. The new disclosures include rollforwards and information about significant assumptions and the effects of changes in those assumptions.

For calendar-year public companies, the changes will be effective on January 1, 2023, however, early adoption is permitted. We will adopt this ASU effective January 1, 2023 with a transition date of January 1, 2021 using a modified retrospective approach. We continue to make progress in our implementation process that includes, but is not limited to, making significant accounting policy decisions, employing appropriate internal controls, building and updating actuarial models and systems, revising reporting processes and developing informative qualitative and quantitative disclosures. In 2022, we will begin the process of calculating our transition adjustments and preparing for the restatement of applicable periods. We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations and will be able to better assess the effects as we progress with our implementation efforts. While it is not possible to estimate the expected impact of adoption at this time, the Company believes there is a reasonable possibility that implementation this ASU may result in a material impact to accumulated other comprehensive income and future earnings patterns.

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

March 31, ~~2021~~2022 | 10-Q 9

Table of Contents


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 is evaluating the impact of this new guidance, and it is expected to have a material impact on our consolidated financial statements.

~~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.~~International These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional coverage and annuity benefits to enhance accumulations. CICA ~~and CNLIC issued ordinary whole-life,~~issues 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~~CNLIC issues ordinary whole life in ~~Florida in 2021.~~Florida.

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~~Our Home Service Insurance segment also sells ~~limited liability, named peril~~ property insurance policies ~~covering dwelling~~in Louisiana and ~~contents.~~Arkansas.

The Life Insurance and Home Service Insurance portions of the company constitute separate businesses. The Company also operates other non-insurance portions of the Company ("Other Non-Insurance Enterprises"), which primarily include the Company’s IT and ~~Corporate-support~~corporate-support functions that are included in the tables ~~presented.~~presented below to properly reconcile the segment information with the consolidated financial statements of the Company. The Company's Other Non-Insurance Enterprises are the only reportable difference between segments and consolidated operations.

The accounting policies of the reportable segments and Other Non-Insurance Enterprises are presented in accordance with U.S. GAAP and are the same as those used in the preparation of the consolidated financial statements. The Company evaluates profit and loss performance based on U.S. GAAP income or loss before federal income taxes for its 2 reportable segments.

March 31, ~~2021~~2022 | 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)


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Three Months Ended March 31, 2022
(In thousands)

Revenues:
Premiums	$	26,931	12,433	—	39,364
Net investment income	11,971		3,244	272	15,487
Investment related gains (losses), net	(293)		(242)	(47)	(582)
Other income	1,088		—	—	1,088
Total revenues	39,697		15,435	225	55,357
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	21,458		6,976	—	28,434
Increase in future policy benefit reserves	5,130		1,439	—	6,569
Policyholders' dividends	1,350		3	—	1,353
Total insurance benefits paid or provided	27,938		8,418	—	36,356
Commissions	3,806		3,867	—	7,673
Other general expenses	5,691		4,350	989	11,030
Capitalization of deferred policy acquisition costs	(3,306)		(1,475)	—	(4,781)
Amortization of deferred policy acquisition costs	4,482		1,335	—	5,817
Amortization of cost of insurance acquired	56		180	—	236
Total benefits and expenses	38,667		16,675	989	56,331
Income (loss) before federal income tax expense	$	1,030	(1,240)	(764)	(974)

March 31, ~~2021~~2022 | 10-Q 11

Table of Contents


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


		Life Insurance			Home Service Insurance		Other Non-Insurance Enterprises		Consolidated		Life Insurance				Home Service Insurance			Other Non-Insurance Enterprises			Consolidated
Three Months Ended March 31, 2020
Three Months Ended March 31, 2021						Three Months Ended March 31, 2021
(In thousands)	(In thousands)			Life Insurance				Home Service Insurance					Other Non-Insurance Enterprises			Consolidated		(In thousands)	Life Insurance			Home Service Insurance			Other Non-Insurance Enterprises		Consolidated

Revenues:	Revenues:					Revenues:
Premiums	Premiums	$	29,819				11,498				0				41,317	Premiums	$	27,063		11,969			—			39,032
Net investment income	Net investment income	11,480				3,332			357			15,169		Net investment income	11,598			3,345			301			15,244
Realized investment gains (losses), net		735			(1,717)		(324)		(1,306)
Investment related gains (losses), net										Investment related gains (losses), net	(108)				223			177			292
Other income	Other income	524			18		0		542	Other income	913				2			—			915
Total revenues	Total revenues	42,558			13,131		33		55,722	Total revenues	39,466				15,539			478			55,483
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	20,160			6,289		0		26,449	Claims and surrenders	23,270				7,319			—			30,589
Increase in future policy benefit reserves	Increase in future policy benefit reserves	8,146			1,325		0		9,471	Increase in future policy benefit reserves	3,658				1,574			—			5,232
Policyholders' dividends	Policyholders' dividends	1,225			8		0		1,233	Policyholders' dividends	1,296				10			—			1,306
Total insurance benefits paid or provided	Total insurance benefits paid or provided	29,531			7,622		0		37,153	Total insurance benefits paid or provided	28,224				8,903			—			37,127
Commissions	Commissions	4,478			3,375		0		7,853	Commissions	4,231				3,926			—			8,157
Other general expenses	Other general expenses	4,948			4,316		2,209		11,473	Other general expenses	5,226				3,794			2,362			11,382
Capitalization of deferred policy acquisition costs	Capitalization of deferred policy acquisition costs	(3,921)			(1,088)		0		(5,009)	Capitalization of deferred policy acquisition costs	(3,561)				(1,424)			—			(4,985)
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	5,318			801		0		6,119	Amortization of deferred policy acquisition costs	5,348				835			—			6,183
Amortization of cost of insurance acquired	Amortization of cost of insurance acquired	118			250		0		368	Amortization of cost of insurance acquired	104				263			—			367
Total benefits and expenses	Total benefits and expenses	40,472			15,276		2,209		57,957	Total benefits and expenses	39,572				16,297			2,362			58,231
Income (loss) before federal income tax expense	Income (loss) before federal income tax expense	$	2,086		(2,145)		(2,176)		(2,235)	Income (loss) before federal income tax expense	$	(106)			(758)			(1,884)			(2,748)

March 31, ~~2021~~2022 | 10-Q 12

Table of Contents


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

(4) STOCKHOLDERS' EQUITY AND RESTRICTIONS

STOCK

Our Restated and Amended Articles of Incorporation authorize the issuance of 127,000,000 shares, of which 100,000,000 shares shall be Class A common stock, 2,000,000 shares shall be Class B common stock, and 25,000,000 shall be preferred stock. The 2 authorized classes of common stock are equal in all respects, except (a) each share of Class A common stock is entitled to receive twice the cash dividends paid on a per share basis to the Class B common stock, if any; and (b) the holders of the Class B common stock have the exclusive right to elect a simple majority of the board of Directors of Citizens. In April 2021, we repurchased all of the outstanding Class B common stock, which is now classified as treasury stock. As a result, all of the directors are elected by the holders of the Class A common stock. Citizens has never issued any preferred stock.

EARNINGS PER SHARE

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


Three Months Ended March 31,	Three Months Ended March 31,	2021		2020	Three Months Ended March 31,	2022		2021
(In thousands, except per share amounts)	(In thousands, except per share amounts)				(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)	$	(1,333)	(3,573)
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	$	(1,333)	(3,537)
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	—		(36)
Net income (loss)	Net income (loss)	$	(3,573)	(3,584)	Net income (loss)	$	(1,333)	(3,573)

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	50,236		49,549
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	50,906		50,116
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	—		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)	(0.07)
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	—		(0.04)

CAPITAL AND SURPLUS

Each of our regulated insurance subsidiaries is required to meet stipulated regulatory capital requirements. These include capital requirements imposed by the U.S. National Association of Insurance Commissioners ("NAIC") and the Bermuda Monetary Authority ("BMA"). All insurance subsidiaries exceeded the minimum capital requirements at March 31, ~~2021.~~2022.

In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation or excess risk, the BMA has established a threshold capital level (termed the Target Capital Level ("TCL")), which is set at 120% of a company’s enhanced capital requirement. The TCL serves as an early warning tool for the BMA. As of March 31, ~~2021,~~2022, CICA ~~Ltd.~~International was above the TCL threshold. At the request of the BMA, on April 15, 2021, Citizens and CICA ~~Ltd.~~International entered into a Keep Well Agreement. The Keep Well Agreement requires Citizens to contribute up to $10 million in capital to CICA ~~Ltd.~~International as necessary to ensure that CICA ~~Ltd.~~International has a minimum capital level of 120% (equal to the TCL). Since CICA ~~Ltd.’s~~International’s capital level currently exceeds 120%, Citizens is not currently required to make a capital contribution.

March 31, ~~2021~~2022 | 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%~~88.4% of total cash and invested assets at March 31, ~~2021,~~2022, 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 %)	March 31, 2022				December 31, 2021
		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	$	1,355,410	88.4	%	1,470,617	89.0	%
Equity securities	Equity securities	22,366		1.4	%	22,102	1.3	%	Equity securities	13,902		0.9	%	14,844	0.9	%
Policy loans	Policy loans	82,674		5.3	%	83,318	5.0	%	Policy loans	79,345		5.2	%	80,307	4.9	%
Real estate and other long-term investments		19,918		1.3	%	29,865	1.8	%
Other long-term investments									Other long-term investments	63,927		4.2	%	57,399	3.5	%

Cash and cash equivalents	Cash and cash equivalents	19,493		1.2	%	34,131	2.1	%	Cash and cash equivalents	21,298		1.3	%	27,294	1.7	%

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	$	1,533,882	100.0	%	1,650,461	100.0	%

The following tables represent the amortized cost, gross unrealized gains and losses and fair value of fixed maturity securities as of the dates indicated.


		Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost				Gross Unrealized Gains			Gross Unrealized Losses		Fair Value
March 31, 2021
March 31, 2022						March 31, 2022
(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	$	9,494		681		5		10,170
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	3,483			1,034		0		4,517	U.S. Government-sponsored enterprises	3,456				693			—		4,149
States and political subdivisions	States and political subdivisions	370,995			24,819		1,955		393,859	States and political subdivisions	354,513				13,363			9,481		358,395
Corporate:	Corporate:									Corporate:
Financial	Financial	207,547			15,269		1,621		221,195	Financial	220,033				4,394			9,036		215,391
Consumer	Consumer	204,988			16,745		3,034		218,699	Consumer	227,963				7,180			12,375		222,768
Energy	Energy	79,422			4,904		1,092		83,234	Energy	76,884				1,684			1,905		76,663
All Other		294,528			21,395		4,261		311,662
All other										All other	305,831				7,191			13,714		299,308

Residential mortgage-backed	Residential mortgage-backed	118,186			14,006		46		132,146	Residential mortgage-backed	117,848				5,549			235		123,162
Asset-backed	Asset-backed	43,874			327		63		44,138	Asset-backed	45,131				268			102		45,297
Foreign governments	Foreign governments	101			15		0		116	Foreign governments	101				6			—		107
Total fixed maturity securities	Total fixed maturity securities	$	1,332,632		100,027		12,072		1,420,587	Total fixed maturity securities	$	1,361,254			41,009			46,853		1,355,410

March 31, ~~2021~~2022 | 10-Q 14

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, 2021						December 31, 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	$	9,529			1,797			0			11,326		U.S. Treasury securities	$	9,515		1,097		1		10,611
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	3,490			1,301		0		4,791	U.S. Government-sponsored enterprises	3,463				996			—		4,459
States and political subdivisions	States and political subdivisions	377,462			32,751		548		409,665	States and political subdivisions	356,594				28,056			692		383,958
Corporate:	Corporate:									Corporate:
Financial	Financial	204,160			31,000		13		235,147	Financial	213,652				22,477			172		235,957
Consumer	Consumer	196,648			30,116		245		226,519	Consumer	219,223				23,658			900		241,981
Energy	Energy	81,223			8,174		536		88,861	Energy	76,989				7,334			68		84,255
All Other		284,209			42,554		82		326,681
Commercial mortgage-backed		225			0		4		221
All other										All other	302,141				29,855			1,181		330,815

Residential mortgage-backed	Residential mortgage-backed	118,144			21,819		0		139,963	Residential mortgage-backed	117,755				16,046			6		133,795
Asset-backed	Asset-backed	46,295			278		482		46,091	Asset-backed	44,322				368			14		44,676
Foreign governments	Foreign governments	102			16		0		118	Foreign governments	101				9			—		110
Total fixed maturity securities	Total fixed maturity securities	$	1,321,487		169,806		1,910		1,489,383	Total fixed maturity securities	$	1,343,755			129,896			3,034		1,470,617

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

Fair Value
(In thousands)
March 31, 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)	March 31, 2022		December 31, 2021

Equity securities:
Stock mutual funds	$	3,476	3,571
Bond mutual funds	4,880		5,060
Common stock	957		990
Non-redeemable preferred stock	10		161
Non-redeemable preferred stock fund	4,579		5,062
Total equity securities	$	13,902	14,844

VALUATION OF INVESTMENTS

Available-for-sale ("AFS") fixed maturity securities are reported in the consolidated financial statements at fair value. Equity securities are measured at fair value with the change in fair value recorded through net income. The Company recognized net ~~realized gains~~investment related losses of ~~$0.3~~$0.8 million on equity securities held for the three months ended March 31, ~~2021~~2022 and ~~losses~~gains of ~~$1.1~~$0.3 million for the same period ended March 31, ~~2020.~~2021.

The Company considers several factors in its review and evaluation of individual investments, using the process described in Part IV, Item 15, Note 2. Investments in the notes to the consolidated financial statements of our Form 10-K to determine whether a credit loss impairment exists. For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, the Company recorded 0no credit valuation losses on fixed maturity securities.

March 31, ~~2021~~2022 | 10-Q 15

Table of Contents


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, ~~2021~~2022 and December 31, ~~2020.~~2021.


March 31, 2021		Less than 12 months				Greater than 12 months				Total
March 31, 2022														March 31, 2022	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	$	68	5	2	—	—	—	68	5	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	93,810		9,274	103	807	207	2	94,617	9,481	105
Corporate:	Corporate:													Corporate:
Financial	Financial	35,670		1,621	40	0		0	0	35,670		1,621	40	Financial	100,331		8,800	124	1,075	236	1	101,406	9,036	125
Consumer	Consumer	51,477		3,034	49	0		0	0	51,477		3,034	49	Consumer	118,748		11,657	139	3,348	718	7	122,096	12,375	146
Energy	Energy	14,151		593	14	2,557		499	6	16,708		1,092	20	Energy	30,597		1,905	37	—	—	—	30,597	1,905	37
All Other	All Other	74,922		4,261	96	0		0	0	74,922		4,261	96	All Other	139,085		11,752	187	8,747	1,962	6	147,832	13,714	193

Residential mortgage-backed	Residential mortgage-backed	1,595		46	9	0		0	0	1,595		46	9	Residential mortgage-backed	4,793		235	14	—	—	—	4,793	235	14
Asset-backed	Asset-backed	6,434		48	11	9,253		15	8	15,687		63	19	Asset-backed	21,315		99	24	662	3	1	21,977	102	25

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	$	508,747	43,727	630	14,639	3,126	17	523,386	46,853	647


December 31, 2020		Less than 12 months				Greater than 12 months				Total
December 31, 2021														December 31, 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. Government-sponsored enterprises														U.S. Government-sponsored enterprises	$	72	1	2	—	—	—	72	1	2
States and political subdivisions	States and political subdivisions	$	32,487	548	27	$	0	0	0	$	32,487	548	27	States and political subdivisions	21,715		692	15	—	—	—	21,715	692	15
Corporate:	Corporate:													Corporate:
Financial	Financial	1,308		13	1	0		0	0	1,308		13	1	Financial	8,059		86	15	1,227	86	1	9,286	172	16
Consumer	Consumer	10,740		230	5	1,667		15	1	12,407		245	6	Consumer	29,494		777	28	2,419	123	1	31,913	900	29
Energy	Energy	6,350		536	8	0		0	0	6,350		536	8	Energy	7,381		68	8	—	—	—	7,381	68	8
All Other	All Other	9,418		82	11	0		0	0	9,418		82	11	All Other	33,384		781	30	4,523	400	4	37,907	1,181	34
Commercial mortgage-backed		221		4	1	0		0	0	221		4	1

Residential mortgage-backed	Residential mortgage-backed	83		0	1	0		0	0	83		0	1	Residential mortgage-backed	1,084		6	6	—	—	—	1,084	6	6
Asset-backed	Asset-backed	26,353		481	26	994		1	1	27,347		482	27	Asset-backed	9,078		12	11	663	2	1	9,741	14	12
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	$	110,267	2,423	115	8,832	611	7	119,099	3,034	122

In each category of our fixed maturity securities described above, we do not intend to sell our investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

~~We did not recognize credit~~ These unrealized losses on fixed maturity securities ~~with unrealized losses that were~~are due to noncredit-related factors, including interest rate sensitivity and ~~changes in credit spreads. We believe that fluctuations caused by movements in interest rates and credit spreads~~other market conditions, which have little bearing on the recoverability of our ~~investments.~~investments, hence they are not recognized as credit losses. The fair value is expected to recover as the securities approach ~~maturity.~~maturity or if market yields for such investments decline. While the losses are currently unrealized, we

March 31, ~~2021~~2022 | 10-Q 16

Table of Contents


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

continue to monitor all fixed maturity securities on an ongoing basis as future information may become available which could result in an allowance being recorded.

The amortized cost and fair value of fixed maturity securities at March 31, ~~2021~~2022 by contractual maturity are shown in the table below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date have been reflected based upon final stated maturity.


March 31, 2021		Amortized Cost				Fair Value
March 31, 2022				March 31, 2022	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	$	43,909		44,649
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	110,505			113,784
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	214,028			221,903
Due after ten years	Due after ten years	978,601				1,038,850	Due after ten years	992,812			975,074
Total fixed maturity securities	Total fixed maturity securities	$	1,332,632			1,420,587	Total fixed maturity securities	$	1,361,254		1,355,410

The Company uses the specific identification method of the individual security to determine the cost basis used in the calculation of realized gains and losses related to security sales.


		Three Months Ended					Three Months Ended
Fixed Maturity Securities, Available-for-Sale	Fixed Maturity Securities, Available-for-Sale	March 31,				Fixed Maturity Securities, Available-for-Sale	March 31,
(In thousands)	(In thousands)		2021		2020			(In thousands)	2022		2021

Proceeds	Proceeds		$	7,254	940			Proceeds	$	1,100	7,254
Gross realized gains	Gross realized gains		$	100	0			Gross realized gains	$	—	100
Gross realized losses	Gross realized losses		$	1	38			Gross realized losses	$	—	1

The Company sold 181 and 118 AFS fixed maturity securities during the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~NaN equity securities were sold during the three months ended March 31, 2021 and 2020.~~

(6) FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We hold AFS fixed maturity securities, which are carried at fair value. We also report our equity securities and other long-term investments at fair value with changes in fair value reported through the consolidated statements of operations and comprehensive income (loss).

Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:

•Level 1 - Quoted prices for identical instruments in active markets.

•Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or ~~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~~2022 | 10-Q 17

Table of Contents


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

whose significant value drivers are observable.

•Level 3 - Instruments whose significant value drivers are unobservable.

Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments.

Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes. These pricing models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments. All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, securities issued by states and political subdivisions and certain mortgage and asset-backed securities.

Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information. ~~Real estate held-for-sale is~~We have no investments in this category.

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


March 31, 2021		Level 1			Level 2			Level 3		Total Fair Value
March 31, 2022						March 31, 2022	Level 1						Level 2					Level 3				Total Fair Value
(In thousands)	(In thousands)			Level 1					Level 2			Level 3								Total Fair Value				(In thousands)
Financial Assets	Financial Assets					Financial Assets
Fixed maturity securities available-for-sale	Fixed maturity securities available-for-sale																		Fixed maturity securities available-for-sale
U.S. Treasury and U.S. Government-sponsored enterprises	U.S. Treasury and U.S. Government-sponsored enterprises	$	11,021		4,517			0			15,538			U.S. Treasury and U.S. Government-sponsored enterprises		$	10,170				4,149				—		14,319
States and political subdivisions	States and political subdivisions	0			393,859			0		393,859			States and political subdivisions		—				358,395				—			358,395
Corporate	Corporate	52			834,738			0		834,790			Corporate		50				814,080				—			814,130

Residential mortgage-backed	Residential mortgage-backed	0			132,146			0		132,146			Residential mortgage-backed		—				123,162				—			123,162
Asset-backed	Asset-backed	0			44,138			0		44,138			Asset-backed		—				45,297				—			45,297
Foreign governments	Foreign governments	0			116			0		116			Foreign governments		—				107				—			107
Total fixed maturity securities available-for-sale	Total fixed maturity securities available-for-sale	11,073			1,409,514			0		1,420,587			Total fixed maturity securities available-for-sale		10,220				1,345,190				—			1,355,410

Equity securities	Equity securities												Equity securities
Stock mutual funds	Stock mutual funds	3,386			0			0		3,386			Stock mutual funds		3,476				—				—			3,476
Bond mutual funds	Bond mutual funds	12,452			0			0		12,452			Bond mutual funds		4,880				—				—			4,880
Common stock	Common stock	1,190			0			0		1,190			Common stock		957				—				—			957
Non-redeemable preferred stock	Non-redeemable preferred stock	276			0			0		276			Non-redeemable preferred stock		10				—				—			10
Non-redeemable preferred stock fund	Non-redeemable preferred stock fund	5,062			0			0		5,062			Non-redeemable preferred stock fund		4,579				—				—			4,579
Total equity securities	Total equity securities	22,366			0			0		22,366			Total equity securities		13,902				—				—			13,902
Other long-term investments (1)	Other long-term investments (1)	0			0			0		16,982			Other long-term investments (1)		—				—				—			62,564
Total financial assets	Total financial assets	$	33,439		1,409,514			0		1,459,935			Total financial assets		$	24,122			1,345,190				—			1,431,876

(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient ~~have~~are 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 consolidated balance sheet.

March 31, ~~2021~~2022 | 10-Q 18

Table of Contents


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


December 31, 2020		Level 1			Level 2			Level 3		Total Fair Value
December 31, 2021						December 31, 2021	Level 1						Level 2					Level 3				Total Fair Value
(In thousands)	(In thousands)			Level 1					Level 2			Level 3								Total Fair Value				(In thousands)
Financial Assets	Financial Assets					Financial Assets
Fixed maturity securities available-for-sale	Fixed maturity securities available-for-sale																		Fixed maturity securities available-for-sale
U.S. Treasury and U.S. Government-sponsored enterprises	U.S. Treasury and U.S. Government-sponsored enterprises	$	11,326		4,791			0			16,117			U.S. Treasury and U.S. Government-sponsored enterprises		$	10,611				4,459				—		15,070
States and political subdivisions	States and political subdivisions	0			409,665			0		409,665			States and political subdivisions		—				383,958				—			383,958
Corporate	Corporate	52			877,156			0		877,208			Corporate		51				892,957				—			893,008
Commercial mortgage-backed		0			221			0		221

Residential mortgage-backed	Residential mortgage-backed	0			139,963			0		139,963			Residential mortgage-backed		—				133,795				—			133,795
Asset-backed	Asset-backed	0			46,091			0		46,091			Asset-backed		—				44,676				—			44,676
Foreign governments	Foreign governments	0			118			0		118			Foreign governments		—				110				—			110
Total fixed maturity securities available-for-sale	Total fixed maturity securities available-for-sale	11,378			1,478,005			0		1,489,383			Total fixed maturity securities available-for-sale		10,662				1,459,955				—			1,470,617

Equity securities	Equity securities												Equity securities
Stock mutual funds	Stock mutual funds	3,174			0			0		3,174			Stock mutual funds		3,571				—				—			3,571
Bond mutual funds	Bond mutual funds	12,354			0			0		12,354			Bond mutual funds		5,060				—				—			5,060
Common stock	Common stock	1,143			0			0		1,143			Common stock		990				—				—			990
Non-redeemable preferred stock	Non-redeemable preferred stock	281			0			0		281			Non-redeemable preferred stock		161				—				—			161
Non-redeemable preferred stock fund	Non-redeemable preferred stock fund	5,150			0			0		5,150			Non-redeemable preferred stock fund		5,062				—				—			5,062
Total equity securities	Total equity securities	22,102			0			0		22,102			Total equity securities		14,844				—				—			14,844
Other long-term investments (1)	Other long-term investments (1)	0			0			0		11,923			Other long-term investments (1)		—				—				—			56,038
Total financial assets	Total financial assets	$	33,480		1,478,005			0		1,523,408			Total financial assets		$	25,506			1,459,955				—			1,541,499
(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient 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.
(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.													(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

FINANCIAL INSTRUMENTS VALUATION

FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE

Fixed maturity securities, available-for-sale. At March 31, ~~2021, our~~2022, fixed maturity securities, valued using a third-party pricing source, totaled ~~$1.4~~$1.3 billion for Level 2 assets and comprised ~~96.5%~~93.9% of total reported fair value of our financial assets. The Level 1 and Level 2 valuations are reviewed and updated quarterly through testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades. In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness. There were 0no Level 3 assets at March 31, ~~2021.~~2022. For the three months ended March 31, ~~2021,~~2022, there were no material changes to the valuation methods or assumptions used to determine fair values, and 0no 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.~~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 ~~private equity funds~~limited partnerships that calculate NAV per share. For these investments, which are measured at fair value on a recurring basis, we use the NAV per share to measure fair value. Changes in the NAV of our limited partnerships are recorded through net income. The Company recognized net investment

March 31, ~~2021~~2022 | 10-Q 19

Table of Contents


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

~~which are measured at fair value~~related losses of $0.8 million on ~~a recurring basis, we use~~limited partnerships held for the ~~NAV per share to measure fair value.~~three months ended March 31, 2022. These investments are included in other long-term investments on the consolidated balance sheets.


			March 31, 2021				December 31, 2020						March 31, 2022				December 31, 2021
			Fair Value Using NAV Per Share		Unfunded Commit- ments	Life in years	Fair Value Using NAV Per Share		Unfunded Commit- ments	Life in years			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)	(In thousands, except years)										(In thousands, except years)
Private equity funds
Limited partnerships											Limited partnerships
Middle market	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	Middle market	Investments in privately-originated, performing senior secured debt primarily in North America-based companies	$	27,336	13,593	9	$	21,947	18,712	10
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
Global equity fund											Global equity fund	Investments in common stocks of U.S., international developed and emerging markets with a focus on long-term capital growth	9,890		—	0	10,607		—	0

Late-stage growth	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	Late-stage growth	Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale	21,564		7,256	6	20,468		4,459	6
Infrastructure	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	Infrastructure	Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy	3,774		15,970	11	3,016		16,653	12
Total private equity funds			$	16,982	63,460		$	11,923	63,571
Total limited partnerships											Total limited partnerships		$	62,564	36,819		$	56,038	39,824

~~Our private equity fund~~The majority of our limited partnership investments are not redeemable because distributions from the funds will be received when the underlying investments of the ~~funds~~partnerships are liquidated. The life spans indicated above may be shortened or extended at the fund manager's discretion, typically in one or two-year increments. The global equity fund is redeemable monthly.

We initially estimate the fair value of investments in ~~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 March 31, 2022 and December 31, 2021.

We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. There were 0no transfers in or out of Level 3 during the three months ended March 31, 2022 or 2021.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments. The ~~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, ~~2021~~2022 | 10-Q 20

Table of Contents


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			March 31, 2022			December 31, 2021
(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	$	79,345	79,345	80,307	80,307
Mortgage loans		153		190	157	195
Commercial mortgage loan							Commercial mortgage loan	1,000		1,000	1,000	1,000
Residential mortgage loans							Residential mortgage loans	145		167	148	169

Cash and cash equivalents	Cash and cash equivalents	19,493		19,493	34,131	34,131	Cash and cash equivalents	21,298		21,298	27,294	27,294
Financial Liabilities:	Financial Liabilities:						Financial Liabilities:
Annuity - investment contracts	Annuity - investment contracts	61,716		68,360	60,861	71,547	Annuity - investment contracts	65,063		67,272	64,384	72,352

Policy loans. Policy loans had a weighted average annual interest rate of 7.7% at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021 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 and is considered a Level 3 asset in the fair value hierarchy.

Residential mortgage loans. Mortgage loans are secured principally by residential properties. Weighted average interest rates for these loans were approximately 6.4% at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. At March 31, ~~2021,~~2022, maturities ranged from 75 to 1918 years. Management estimated the fair value using an annual interest rate of 6.25% at March 31, ~~2021.~~2022. Our mortgage loans are considered Level 3 assets in the fair value hierarchy and are included in other long-term investments on the consolidated balance sheets.

Cash and cash equivalents. The fair value of cash and cash equivalents approximate carrying value and are characterized as Level 1 assets in the fair value hierarchy.

Annuity liabilities. The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from ~~0.20%~~1.57% to ~~2.86%~~3.23% and ~~0.22%~~0.50% to ~~2.34%~~2.63%, respectively. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

~~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, ~~2021~~2022 | 10-Q 21

Table of Contents


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

Other long-term investments. Financial instruments included in other long-term investments are classified in various levels of the fair value hierarchy. The following table summarizes the carrying amounts of these investments.


Carrying Value (In thousands)	March 31, 2022		December 31, 2021
Other long-term investments:
Limited partnerships	$	62,564	56,038
FHLB common stock	192		192
Mortgage loans	1,145		1,148
All other investments	26		21
Total other long-term investments	$	63,927	57,399

We are a member of the Federal Home Loan Bank ("FHLB") of Dallas and such membership requires members to own stock in ~~the~~ FHLB. Our FHLB stock is carried at amortized cost, which approximates fair value. Included in all other investments in 2020 was a Rabbi Trust holding $8.8 million for the benefit of our former Chief Executive Officer, Geoffrey Kolander, which represented his severance payment under the terms of his employment agreement in connection with his resignation following a change in control of the Company, that was paid during the first quarter of 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, ~~2021,~~2022, CICA ~~Ltd.~~International is committed to fund investments up to ~~$68.5~~$36.8 million related to ~~private equity funds~~limited partnerships previously described and other investments.

CREDIT FACILITY

On May 5, 2021, the Company entered into a $20 million senior secured revolving credit facility (the “Credit Facility”) with Regions Bank ~~(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, 2021,~~March 31, 2022, the Company had not borrowed any funds against the Credit ~~Facility.~~Facility and was not in violation of any covenants.

March 31, ~~2021~~2022 | 10-Q 22

Table of Contents


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.,~~International, a wholly owned subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes. As a result, the insurance activity of CICA ~~Ltd.~~International is subject to Subpart F of the IRC and is included in Citizens’ taxable income. Due to the 0% enacted tax rate in Bermuda, there are no deferred taxes recorded for CICA International's temporary differences. For the three months ended March 31, 2022 and March 31, 2021, the Subpart F income inclusion generated $0.8 million and $0.4 million, respectively, of federal income tax expense.

A reconciliation between the U.S. corporate income tax rate and the effective income tax rate is as follows:


Three Months Ended March 31,	Three Months Ended March 31,	2021				2020			Three Months Ended March 31,	2022				2021
(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)	$	(205)	21.0	%	$	(577)	21.0	%

Foreign income tax rate differential	Foreign income tax rate differential	(152)		5.5	%	(550)	24.6	%	Foreign income tax rate differential	(299)		30.7	%	(152)		5.5	%

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	(25)		2.6	%	(30)		1.1	%

Annualized effective tax rate adjustment	Annualized effective tax rate adjustment	655		(23.8)	%	617	(27.6)	%	Annualized effective tax rate adjustment	97		(10.0)	%	655		(23.8)	%
Adjustment of prior year taxes		0		0	%	(5)	0.2	%

Effect of uncertain tax position	Effect of uncertain tax position	603		(21.9)	%	1,015	(45.4)	%	Effect of uncertain tax position	12		(1.2)	%	603		(21.9)	%

CICA Ltd. Subpart F income		392		(14.3)	%	675	(30.2)	%
CICA International Subpart F income									CICA International Subpart F income	754		(77.4)	%	392		(14.3)	%

Nondeductible officer compensation	Nondeductible officer compensation	(73)		2.7	%	0	0	%	Nondeductible officer compensation	21		(2.2)	%	(73)		2.7	%
Other	Other	7		(0.3)	%	106	(4.7)	%	Other	4		(0.4)	%	7		(0.3)	%
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)	$	359	(36.9)	%	$	825	(30.0)	%

Income tax expense consists of:


Three Months Ended March 31,		2021			2020
							Three Months Ended
										March 31,
(In thousands)	(In thousands)			2021				2020	(In thousands)				2022	2021
Federal income tax expense:	Federal income tax expense:				Federal income tax expense:
Current	Current	$	1,257		1,629	Current					$	172	1,257
Deferred	Deferred	(432)			(280)	Deferred					187		(432)
Total federal income tax expense	Total federal income tax expense	$	825		1,349	Total federal income tax expense					$	359	825

March 31, ~~2021~~2022 | 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~~

Table of Contents


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

(9) OTHER COMPREHENSIVE INCOME

The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% as of the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, as indicated below.


Three Months Ended March 31,						Three Months Ended March 31,	2022				2021
(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	$	(132,765)	8,957	(123,808)	(79,422)	5,373	(74,049)
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	59		(12)	47	(35)	7	(28)
Effects on deferred policy acquisition costs	Effects on deferred policy acquisition costs	25,198		(6,317)	18,881	Effects on deferred policy acquisition costs	344		(72)	272	25,198	(6,317)	18,881
Effects on cost of insurance acquired	Effects on cost of insurance acquired	269		(56)	213	Effects on cost of insurance acquired	152		(32)	120	269	(56)	213
Effects on unearned revenue reserves	Effects on unearned revenue reserves	(1,943)		408	(1,535)	Effects on unearned revenue reserves	(1,073)		225	(848)	(1,943)	408	(1,535)
Other comprehensive income (loss)	Other comprehensive income (loss)	$	(55,933)	(585)	(56,518)	Other comprehensive income (loss)	$	(133,283)	9,066	(124,217)	(55,933)	(585)	(56,518)

Three months ended March 31, 2020
Unrealized gains (losses):
Unrealized holding gains (losses) arising during the period		$	(42,906)	2,750	(40,156)
Reclassification adjustment for (gains) losses included in net income		132		(28)	104
Effects on deferred policy acquisition costs		211		(44)	167
Effects on cost of insurance acquired		115		(24)	91
Effects on unearned revenue reserves		(349)		73	(276)
Other comprehensive income (loss)		$	(42,797)	2,727	(40,070)

(10) RELATED PARTY TRANSACTIONS

The Company has various routine related party transactions in conjunction with our holding company structure, such as a management service agreement related to costs incurred, a tax sharing agreement between entities, and inter-company dividends and capital contributions. There were no changes related to these relationships during the three months ended March 31, ~~2021.~~2022. See our Form 10-K for a comprehensive discussion of related party transactions.

(11) SUBSEQUENT EVENTS

The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was ~~issued.~~

~~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, ~~2021~~2022 | 10-Q 25

~~Table of Contents~~


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

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. Accordingly, there is no party that now controls the Company.

~~March 31, 2021 | 10-Q 26~~24

Table of Contents


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,”~~2021, which are incorporated herein by reference.The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

The 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~~For over 45 years, we have been fulfilling the ~~"Company") is an insurance holding company incorporated in Colorado serving the life insurance~~ needs of ~~individuals in the United States since 1969~~our policyholders and ~~internationally since 1975. Through our~~their families by providing insurance products that offer both living and death benefits. Citizens conducts insurance related operations through its insurance subsidiaries, wewhich provide ~~insurance~~ benefits to residents in 31 U.S. states and more than 7570 different countries. We ~~pursue a strategy of~~specialize in offering ~~traditional~~primarily ordinary whole life insurance, endowment products and final expense insurance in niche markets where we believe we ~~are able to achieve~~can optimize our competitive ~~advantages. We operate in two business segments:~~position.

•As an insurance provider, we collect premiums on an ongoing basis from our policyholders and invest the majority of the premiums to pay future benefits, including claims and surrenders and policyholder dividends. Accordingly, the Company derives its revenues principally from: (1) life insurance premiums earned for insurance coverages provided to insureds in our two operating segments – Life Insurance ~~segment - U.S. dollar-denominated ordinary whole life~~and Home Service Insurance; and (2) net investment income. In addition to paying and reserving for insurance benefits that we pay to our policyholders, our expenses consist primarily of the costs of selling our insurance products (e.g., commissions, underwriting, marketing expenses), operating expenses and ~~endowment policies predominantly sold~~income taxes.

Objective of our Management's Discussion and Analysis

We refer to ~~non-U.S. residents, located principally~~our Management’s Discussion and Analysis of Financial Condition and Results of Operations as our “MD&A”. The objective of our MD&A is to provide investors with information in ~~Latin America~~order to assess the material changes in our financial condition from December 31, 2021 to March 31, 2022 and the ~~Pacific Rim, through independent marketing consultants; and~~material changes in our results of operations from March 31, 2021 to March 31, 2022. We also discuss in the MD&A any trends that we believe may materially affect our future operations or financial condition.

March 31, 2022 | 10-Q 25

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

The Factors that Drive our Operating Results

We see the following as the primary factors that drive our operating results:

•Sales (i.e., premium revenues)

•Investments

•Death claims and surrenders

•Operating expenses

As premium revenues and investment income are our two primary sources of income, both new sales and "resells" (i.e. retaining the policy) as well as our investments and the interest we receive on such investments, are key to our profitability.

Our premium revenue increased in the first three months of 2022 compared to 2021 as growth in renewal premiums in both segments more than offset lower first-year premiums in our Life Insurance segment, which in 2022 decreased by 19.8% compared to 2021. Renewal premiums increased 2.4% in 2022 as compared to 2021, which we believe is due to strong first year sales in 2021 and continued retention and collection efforts.

While interest rates have recently started to increase, our yield declined 1 basis point to 4.20% in the first three months of 2022 as a substantial portion of our fixed maturity portfolio was called or matured over the past few years and we faced challenges in finding comparable yields. Our net investment income increased by $0.2 million from the 2021 period to the 2022 period due to a growing asset base and positive returns from our middle market private equity investment.

As part of the ongoing process of managing our portfolio and optimizing performance we have been diversifying our investment portfolio in order to help mitigate the effects of the sustained low interest rate environment, however, this diversification comes with some volatility and accordingly, due to the general market decline in the first quarter of 2022, we incurred investment related losses of $0.6 million in the current period compared to gains of $0.3 million in prior year quarter.

Payment of policyholder benefits for death claims and surrenders is our largest expense and thus also key to our profitability. In the first quarter of 2022, our death claims decreased. Death claims in the 2021 period in our Life Insurance segment were negatively impacted by higher reported claims, including COVID-19 related deaths and the average dollar amount of claims incurred. Our surrenders decreased in the first quarter of 2022 compared to the

March 31, 2022 | 10-Q 26

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

same period in 2021, which we believe was in large part due to our retention initiatives.

Operating expenses are our second largest expense and thus drive our operating results. Our general operating expenses decreased by $0.4 million in 2022 as compared to 2021.

FINANCIAL HIGHLIGHTS

Financial Condition at March 31, 2022

•Total investments of $1.5 billion; fixed maturity securities comprised 89.6% of total investments.

•Total assets of $1.7 billion.

•Total stockholders' equity of $0.2 billion.

•$4.6 billion of direct insurance in force.

•No debt.

•Fully diluted loss per share of Class A common stock of $0.03.

Our net loss decreased by $2.2 million in the three months ended March 31, 2022 to $1.3 million compared to $3.6 million in prior year period. The decrease in our net loss was primarily due to a decrease in death claims, federal income tax and other general expenses partially offset by investment losses reflecting changes in fair value of our equity investments, as discussed in Part I, Item 1, Note 5. Investments, changes in fair values of our equity securities are reflected in investment gains or losses, in addition to executed transactions that result in a gain or loss.

March 31, 2022 | 10-Q 27

Table of Contents


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.COVID-19 PANDEMIC

~~CURRENT FINANCIAL HIGHLIGHTS~~

~~In both~~The overall impact of COVID-19 and its related economic conditions on the ~~three months~~Company's financial results continue to be highly uncertain and unpredictable. While the Company has implemented new strategies and processes to mitigate this impact, the scope, duration and magnitude of the direct and indirect effects of COVID-19 are difficult or impossible to anticipate. As a result, it is not possible to predict its impact on the Company's results in 2022 or beyond. While we don't believe that COVID-19 materially impacted our results of operations for the quarter ended March 31, 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 result2022, some 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~~most significant factors 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~~COVID-19 that could cause our future results 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” indiffer significantly from 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:~~prior results or expectations include:

•~~Insurance premiums declined by $2.3 million, or 5.5%,~~a higher level of claims due 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.COVID-19 deaths;

•~~Net~~decreased premium revenue due to disruption to our workforce or distribution channel resulting from required isolation, travel limitations and business restrictions;

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

•volatility in our investment ~~income was $15.2 million in both periods.~~portfolio due to market disruptions caused by COVID-19 related concerns such as inflation.

~~Additionally, realized investment gains increased by $1.6 million primarily for~~We continue to monitor the ~~reason discussed above. Other income increased 68.8% to $0.9 million from $0.5 million for~~impact of 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~~

~~Table of Contents~~


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

~~Consolidated Benefits and Expenses Highlights~~

~~The primary use of~~COVID-19 pandemic on 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.~~operations.

OUR OPERATING SEGMENTS

~~Our~~We manage our business ~~is comprised of~~in two operating ~~business~~ segments, ~~as detailed below.~~

•Life Insurance

• and Home Service ~~Insurance~~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,	Three Months Ended March 31,	2021					2020					Three Months Ended March 31,			2022			2021
		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	$	42,524,454	633	$	67,179	$	50,330,540	863	$	58,320
Home Service Insurance	Home Service Insurance	44,658,259		6,361	7,021		36,117,767		5,174	6,981		Home Service Insurance	54,823,369		5,431	10,095		44,658,259		6,361	7,021
Total	Total	$	94,988,799	7,224			$	85,728,867	5,902			Total	$	97,347,823	6,064			$	94,988,799	7,224

WeTotal insurance issued ~~$95.0 million of insurance~~increased by 2.5% in the three months ended March 31, ~~2021 as compared to $85.7~~2022, from $95.0 million in ~~2020, as both~~the first three months of 2021 to $97.3 million in 2022. The growth was driven by our ~~Life Insurance and~~ Home Service Insurance ~~segments experienced growth. We~~segment. Total insurance issued ~~7,224 new policies~~ in ~~2021, as compared to 5,902 new policies in 2020.~~

~~The number of policies issued~~our Home Service Insurance segment increased by $10.2 million, or 22.8% in the three months ended March 31, 2022 as compared to the same period in 2021, ~~increased 18.5%~~despite the decrease in the ~~Life Insurance segment.~~number of policies issued. The increase in ~~applications~~higher average policy face amounts issued is attributable to sales campaigns that focused on increasing the face amount of insurance sold as well as the introduction of our new whole life product in this segment, which has a higher maximum face value.

Despite higher average policy face values, total insurance issued in our Life Insurance segment decreased in the 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 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,three months ended March 31, 2022 as ~~many of our top international markets remain in quarantine due~~compared to the ~~COVID-19 pandemic. In~~prior year period as the number of policies issued decreased 26.7%. We continue to prioritize recruiting new independent consultants.

March 31, ~~2021~~2022 | 10-Q 2928

Table of Contents


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.~~assets, both of which increased in the first quarter of 2022 as compared to the first quarter of 2021.


		Three Months Ended					Three Months Ended
		March 31,					March 31,
(In thousands)	(In thousands)		2021		2020	(In thousands)		2022		2021

Revenues:	Revenues:					Revenues:
Premiums:	Premiums:					Premiums:
Life insurance	Life insurance		$	37,642	39,946	Life insurance		$	37,746	37,642
Accident and health insurance	Accident and health insurance		343		261	Accident and health insurance		286		343
Property insurance	Property insurance		1,047		1,110	Property insurance		1,332		1,047
Net investment income	Net investment income		15,244		15,169	Net investment income		15,487		15,244
Realized investment gains (losses), net			292		(1,306)
Investment related gains (losses), net						Investment related gains (losses), net		(582)		292
Other income	Other income		915		542	Other income		1,088		915
Total revenues	Total revenues		$	55,483	55,722	Total revenues		$	55,357	55,483

Premium Income. ~~Premium~~Total premium income ~~derived from life, accident and health, and property insurance sales decreased $2.3~~increased $0.3 million, or ~~5.5%~~0.9%, for the three months ended March 31, ~~2021~~2022 compared to the same period in ~~2020. The overall decrease~~2021 due to higher renewal year premiums in ~~premium~~both our segments.

Net Investment Income. Asummary of our net investment income ~~was driven primarily~~and annualized net investment income performance are summarized as follows:


	Three Months Ended
	March 31,
(In thousands, except for %)		2022			2021

Gross investment income:
Fixed maturity securities		$	13,883		14,100
Equity securities		151			207
Policy loans		1,589			1,644
Long-term investments		523			73
Other investment income		21			15
Total investment income		16,167			16,039
Investment expenses		(680)			(795)
Net investment income		$	15,487		15,244



Net investment income, annualized		$	61,948		60,976
Average invested assets, at amortized cost		1,473,240			1,449,518
Annualized yield on average invested assets		4.20		%	4.21	%

March 31, 2022 | 10-Q 29

Table of Contents ��


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

Our total investment income increased by 0.8%. Income from fixed maturity securities income decreased 1.5% for the three months ended March 31, 2022, compared to the same period in 2021 as the three months ended March 31, 2021 included a ~~$2.5~~non-recurring "make-whole" call redemption. Long-term investment income increased as our limited partnership investments asset base grew, in addition to some early distribution income.

Annualized net investment income increased by $1.0 million ~~decline throughout~~in the ~~first~~three months ended March 31, 2022 as compared to the same three months of 2021 despite a slightly lower annualized yield due to our growing asset base and to strong yields from our middle market private equity investment.

Investment Related Gains (Losses), Net. We recorded investment related losses of $0.6 million during the three months ended March 31, 2022 as compared to investment gains of $0.3 million during the three months ended March 31, 2021. The gains and losses are related to fair value change in ~~renewal premiums~~our equity securities owned.

Other income consists primarily of policyholders in our Life Insurance ~~segment. The decrease in renewal premiums in~~segment selecting supplemental contracts upon the ~~Life Insurance segment continues to result from a decline in our in force business in this segment~~surrender or maturity of their original policies, which has been increasing over the past few ~~years, which is due in part to changes we made to our products and distribution~~quarters.

BENEFITS AND EXPENSES


	Three Months Ended
	March 31,
(In thousands)		2022		2021

Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		$	28,434	30,589
Increase in future policy benefit reserves		6,569		5,232
Policyholders' dividends		1,353		1,306
Total insurance benefits paid or provided		36,356		37,127
Commissions		7,673		8,157
Other general expenses		11,030		11,382
Capitalization of deferred policy acquisition costs		(4,781)		(4,985)
Amortization of deferred policy acquisition costs		5,817		6,183
Amortization of cost of insurance acquired		236		367
Total benefits and expenses		$	56,331	58,231

Claims and surrenders ~~outpacing new sales. Premium revenues continue~~benefits and general expenses are our primary uses of cash, both of which decreased in the first quarter of 2022 as compared to ~~be negatively impacted by high levels~~the first quarter of surrenders, which we believe are due not only to an aging block of business (i.e., maturities 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 also due to economic circumstances in Latin America. See the detailed distribution of premiums within ~~Segment Operations~~ ~~discussed below.~~2021.

March 31, ~~2021~~2022 | 10-Q 30

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

~~Net Investment Income.~~Claims and Surrenders. ~~Our annualized net investment income performance is summarized as follows.~~

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

Net investment income, annualized $ 60,976 60,197 60,676
Average invested assets, at amortized cost 1,449,518 1,420,129 1,408,688
Annualized yield on average invested assets 4.21 % 4.24 % 4.31 %


	Three Months Ended
	March 31,
(In thousands)		2022		2021

Claims and Surrenders:
Death claim benefits		$	7,017	8,940
Surrender benefits		12,259		12,807
Endowment benefits		2,134		2,401
Matured endowment benefits		6,134		5,122
Property claims		142		321
A&H and other policy benefits		748		998


Total claims and surrenders		$	28,434	30,589

~~Annualized net investment income~~Death claim benefits decreased 21.5% for the three months ended March 31, 2022 compared to the same period in 2021. Death claims in our Life Insurance segment decreased 63.1% during the first three months of 2022 compared to the same period in 2021 and Home Service Insurance segment claims decreased 3.7%. The decrease in both segments during the first three months of 2022 compared to the same period last year was due primarily a lower volume of reported death claims, including COVID-19 related deaths.

Surrender benefits decreased 4.3% for the three months ended March 31, 2022 compared to the same period in 2021. Surrender benefits represented less than 0.3% of total direct ordinary whole life insurance in force of $4.6 billion as of March 31, 2022. We have focused our efforts on retaining policyholders and believe we have begun to see positive benefits from these efforts starting in the second half of 2021.

Matured endowment benefits increased ~~slightly~~19.8% for the three months ended March 31, 2022, compared to the same period in 2021. We anticipated this increase based upon the dates when our endowment contracts were sold and the maturity dates set forth in the contracts.

Property claims decreased 55.8% in the three months ended March 31, 2021 as compared to the same annualized performance in the 2020 period as an increase in average invested assets derived from cash flows from our insurance operations and a one-time benefit described below offset a lower portfolio yield. The annualized yield decreased by ten basis points during the first quarter of 20212022 compared to the same period in ~~2020, as we continue~~2021 due 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, we are continuing to identify and invest in new asset classes, including private equities.lower hurricane property claims.

~~Investment income from fixed maturity securities accounted~~Other General Expenses. General expenses decreased 3.1% in the three months ended March 31, 2022 compared to the same period in 2021. In the first quarter of 2022 we had lower operating expenses primarily due to consulting fees paid to our former CEO and professional fees incurred in connection with the change in control of the Company, both in the first quarter of 2021, partially offset by higher current quarter expenses associated with our home office.

Explanation of other benefits and expenses

Increase in Future Policy Benefit Reserves. Future policy benefit reserves reflect the liability established to provide for ~~approximately 87.9%~~the payment of ~~total investment income~~policy benefits that we expect to pay in the future and thus increase when we have a higher in force block of business due to higher sales and persistency (i.e., more policies on which we expect to pay future benefits) and decrease when we have lower sales and persistency. The change in future policy benefit reserves increased 25.6% for the three months ended March 31, ~~2021.~~

Three Months Ended
March 31,
(In thousands) 2021 2020
Gross investment income:
Fixed maturity securities $ 14,100 13,868
Equity securities 207 180
Policy loans 1,644 1,623
Long-term investments 73 1
Other investment income 15 68
Total investment income 16,039 15,740
Investment expenses (795) (571)
Net investment income $ 15,244 15,169

~~Income from fixed maturity securities income increased 1.7% for the three months ended March 31, 2021,~~2022, compared to the same period in ~~2020 and our total investment income increased by 1.9% in the same period~~2021 due to the recognition of accelerated interest payments resulting from a “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 our increased investments in private equity, which often include start-up fees.better persistency.

~~Realized Investment Gains (Losses), Net.~~Commissions. ~~We recorded realized gains~~Commission expenses are a cost of ~~$0.3 million during~~acquiring business, as commissions are the primary compensation paid to our independent consultants and independent agents for selling our products. First year commission rates are higher than renewal commission rates and thus commissions fluctuate directly in relation to first quarter of 2021 related to fair value changes in our equity securities owned at March 31, 2021. The fair value of our equity securities owned at March 31, 2020 was negatively impacted by the onset of the COVID-19 pandemic as discussed above.year sales.

March 31, ~~2021~~2022 | 10-Q 31

Table of Contents


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

~~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
March 31,
(In thousands) 2021 2020

Claims and Surrenders:
Death claim benefits $ 8,940 6,589
Surrender benefits 12,807 12,055
Endowment benefits 2,401 2,739
Matured endowment benefits 5,122 3,753
Property claims 321 487
Accident and health benefits 59 53
Other policy benefits 939 773
Total claims and surrenders $ 30,589 26,449

•Death claim benefits increased 35.7% for the three months ended March 31, 2021, compared to the same period in 2020 - Life Insurance segment claims increased 55.6% and 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, and the average dollar amount of claims incurred.

•Surrender benefits increased 6.2% for the three months ended March 31, 2021, compared to the same period in 2020. Surrender benefits represented less than 0.3% of total direct ordinary whole life insurance in force of $4.6 billion 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.

~~March 31, 2021 | 10-Q 32~~

~~Table of Contents~~


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

•Matured endowment benefits increased 36.5% for the three months ended March 31, 2021, compared to the same period in 2020. We anticipated this increase based upon the dates when our endowment contracts were sold and the maturity dates set forth in the contracts.

~~Increase in Future Policy Benefit Reserves.~~ The change in future policy benefit reserves decreased 44.8% for the three months ended March 31, 2021, compared to the same period in 2020. Future policy benefit reserves decreased as our block of in force business decreased.

~~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 months ended March 31, 2021 due to the increase in first year sales in our Home Service Insurance segment.

~~Other General Expenses.~~ As mentioned above, general expenses decreased slightly in the three months ended March 31, 2021 compared to the same period in 2020, driven primarily by lower incentive compensation costs, and lower audit and consulting costs.

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 during the three months ended March 31, 2021 compared to the same period in 2020 as we experienced a decrease in~~contracts and thus fluctuate primarily with first year premium production in our Life Insurance segment as previously discussed. Amortization of deferred policy acquisition costs was slightly higher during the three months ended March 31, 2021 compared to the same period in the prior year.sales. 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 for the three months ended March 31, 2021 compared to the same period in 2020 resulting in effective tax rates of (30.0)% and (60.3)%, respectively. For the three months ended March 31, 2020, the Company's federal income tax expense was impacted by the gain realizedquarter depending on the sale of our former corporate headquarters. 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.~~these factors.

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.

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


	Three Months Ended
	March 31,
(In thousands)		2022		2021
Income (loss) before federal income tax expense:
Segments:
Life Insurance		$	1,030	(106)
Home Service Insurance		(1,240)		(758)
Total segments		(210)		(864)
Other Non-Insurance enterprises		(764)		(1,884)
Total income (loss) before federal income tax expense		$	(974)	(2,748)

LIFE INSURANCE

Income before federal income tax expense in our Life Insurance segment increased by $1.1 million in the first three months of 2022 as compared to the prior year period driven by higher net investment income and lower death benefits, partially offset by higher investment related losses and higher operating expenses.

March 31, 2022 | 10-Q 32

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

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


	Three Months Ended
	March 31,
(In thousands)		2022		2021
Revenues:
Premiums		$	26,931	27,063
Net investment income		11,971		11,598
Investment related gains (losses), net		(293)		(108)
Other income		1,088		913
Total revenues		39,697		39,466
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		21,458		23,270
Increase in future policy benefit reserves		5,130		3,658
Policyholders' dividends		1,350		1,296
Total insurance benefits paid or provided		27,938		28,224
Commissions		3,806		4,231
Other general expenses		5,691		5,226
Capitalization of deferred policy acquisition costs		(3,306)		(3,561)
Amortization of deferred policy acquisition costs		4,482		5,348
Amortization of cost of insurance acquired		56		104
Total benefits and expenses		38,667		39,572
Income (loss) before federal income tax expense		$	1,030	(106)

Life Insurance segment premium breakout is detailed below.


	Three Months Ended
	March 31,
(In thousands)		2022		2021
Premiums:
First year		$	1,987	2,479
Renewal		24,944		24,584
Total premiums		$	26,931	27,063

Premiums. We derive most of our premium revenue in the Life Insurance segment from renewal premiums, which increased 1.5% in the three months ended March 31, 2022 as compared to the same period in 2021. Despite this increase, total premium revenues decreased slightly for the three months ended March 31, 2022 compared to the same period in 2021 due to a decrease in first year premiums. We believe that the decline in first year premiums in our Life Insurance segment is primarily related to a reduction of sales in existing products in anticipation of our new whole life product, which was released March 10, 2022, as well as a continued decline in production in Venezuela due to one of our top distributors leaving our Company. We discussed in Item 3 - Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2021 this agent who we believe is illegally competing with us and stealing our trade secrets and business.

March 31, 2022 | 10-Q 33

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

International Life Insurance Premiums. The following ~~table shows income (loss) before federal income taxes by segments during~~graph sets forth, for our top five producing countries, our direct premiums from our international life insurance business for the ~~periods indicated.~~three months ended March 31, 2022 and 2021.

Three Months Ended
March 31,
(In thousands) 2021 2020
Income (loss) before federal income tax expense:
Segments:
Life Insurance $ (106) 2,086
Home Service Insurance (758) (2,145)
Total segments (864) (59)
Other Non-Insurance enterprises (1,884) (2,176)
Total loss before federal income tax expense $ (2,748) (2,235)


	Three Months Ended
	March 31,
(In thousands)		2022		2021
Country:
Colombia		$	5,531	5,244
Taiwan		4,515		4,484
Venezuela		3,751		4,368
Ecuador		2,775		2,921
Argentina		1,707		1,828
Other Non-U.S.		7,690		8,105
Total		$	25,969	26,950

Domestic Life Insurance Premiums. Domestic premiums in our Life Insurance segment were $1.0 million in the three months ended March 31, 2022, compared to $1.2 million in the prior year period. Our domestic in force business results primarily from blocks of business of insurance companies we have acquired over the years. We discontinued new sales in these blocks in 2017 and therefore the majority of the premium recorded is related to renewal business that has been decreasing over the last several years.

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

~~Our~~


	March 31,			March 31,
(In thousands, except for %)	2022			2021
Net investment income, annualized	$	47,883		46,393
Average invested assets, at amortized cost	1,134,903			1,107,540
Annualized yield on average invested assets	4.22		%	4.19	%

Annualized net investment income in our Life Insurance segment ~~primarily operates through CICA Ltd. (a Bermuda company), which issues ordinary whole life insurance and endowment policies~~increased in ~~U.S. Dollar-denominated amounts~~the three months ended March 31, 2022 compared to ~~non-U.S. residents~~the same period annualized in ~~more than 75 countries through independent marketing consultants. The whole life products are designed~~2021 due 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.

continued growth in average invested assets,

March 31, ~~2021~~2022 | 10-Q 34

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

~~The~~including strong results ~~of operations~~from our middle market private equity investment. See "Investments" below for ~~the Life Insurance segment for the periods indicated are as follows:~~

Three Months Ended
March 31,
(In thousands) 2021 2020
Revenues:
Premiums $ 27,063 29,819
Net investment income 11,598 11,480
Realized investment gains (losses), net (108) 735
Other income 913 524
Total revenues 39,466 42,558
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 23,270 20,160
Increase in future policy benefit reserves 3,658 8,146
Policyholders' dividends 1,296 1,225
Total insurance benefits paid or provided 28,224 29,531
Commissions 4,231 4,478
Other general expenses 5,226 4,948
Capitalization of deferred policy acquisition costs (3,561) (3,921)
Amortization of deferred policy acquisition costs 5,348 5,318
Amortization of cost of insurance acquired 104 118
Total benefits and expenses 39,572 40,472
Income (loss) before federal income tax expense $ (106) 2,086

~~Life Insurance segment premium breakout is~~more detailed ~~below.~~

information on our investments.

Three Months Ended
March 31,
(In thousands) 2021 2020
Premiums:
First year $ 2,479 2,715
Renewal 24,584 27,104
Total premiums $ 27,063 29,819

~~Premiums.~~Investment Related Gains (Losses), Net. ~~We derive most of our premium revenue in the Life Insurance segment from renewal premiums. Total premium revenues declined 9.2%~~The investment related loss for the three months ended March 31, ~~2021~~2022 was due primarily to equity securities negatively impacted by fair value changes.

Claims and Surrenders. The following table shows the primary claims and surrender benefits paid within the Life Insurance segment for the three months ended March 31, 2022 compared to the same period in ~~2020~~2021.


	Three Months Ended
	March 31,
(In thousands)		2022		2021
Claims and Surrenders:
Death claim benefits		$	990	2,684
Surrender benefits		11,637		12,251
Endowment benefits		2,129		2,399
Matured endowment benefits		6,007		4,980
A&H and other policy benefits		695		956


Total claims and surrenders		$	21,458	23,270

During the three months ended March 31, 2022 and ~~renewal premiums declined by 9.3%. See “Consolidated Results~~2021, the majority of ~~Operations” above for a discussion regarding~~our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits. Surrenders decreased 5.0% in the ~~decline~~three months ended March 31, 2022, as compared to the prior year period, as we have instituted retention programs aimed at curbing surrenders. The $1.8 million decrease in ~~renewal premiums~~claims and surrenders expense drove our improved income in this ~~segment. As previously mentioned, first~~segment in the three months ended March 31, 2022 as compared to the prior year ~~policies issued~~period. We believe that the COVID-19 pandemic contributed to high death claims in the 2021 period. The decrease in death claims and surrenders was partially offset by higher matured endowment benefits paid, which we expected due to the timing of maturities.

Other General Expenses. General expenses increased in the three months ended March 31, ~~2021, but lower issued face amounts led~~2022 compared to the ~~decline~~same period in ~~first year premium revenue. Endowment sales totaled approximately $2.2 million of first year premiums~~2021 due primarily to expenses associated with our home office and convention expenses. We did not have a convention in ~~the three months ended March 31,~~ 2021 ~~as compared~~due to ~~$2.0 million in the prior year period.~~COVID-19.

March 31, ~~2021~~2022 | 10-Q 35

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

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

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

~~Sales from Colombia, Taiwan~~Investment related losses and ~~Venezuela continued~~higher general expenses led to ~~represent~~an increase loss in the ~~majority of the new and renewal business premiums in our international business~~Home Service Insurance segment in the three months ended March 31, ~~2021. Overall, four of our top five countries listed above experienced a decline in premium levels in~~2022 as compared to the 2021 period. 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 terminatedbenefited from ~~death, surrender or lapse.~~lower hurricane property claims.

~~DOMESTIC SALES~~Detailed results of operations for the Home Service Insurance segment for the periods indicated are as follows:

~~Domestic premiums in our Life Insurance segment were $1.2 million~~


	Three Months Ended
	March 31,
(In thousands)		2022		2021
Revenues:
Premiums		$	12,433	11,969
Net investment income		3,244		3,345
Investment related gains (losses), net		(242)		223
Other income		—		2
Total revenues		15,435		15,539
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		6,976		7,319
Increase in future policy benefit reserves		1,439		1,574
Policyholders' dividends		3		10
Total insurance benefits paid or provided		8,418		8,903
Commissions		3,867		3,926
Other general expenses		4,350		3,794
Capitalization of deferred policy acquisition costs		(1,475)		(1,424)
Amortization of deferred policy acquisition costs		1,335		835
Amortization of cost of insurance acquired		180		263
Total benefits and expenses		16,675		16,297
Loss before federal income tax expense		$	(1,240)	(758)

Total premium revenue increased by 3.9% in the three months ended March 31, ~~2021, down from $1.3 million~~2022, compared to the same period in 2021. The increase is a result of higher renewal year premiums during the ~~prior year period. Our domestic~~three months ended March 31, 2022 due to improvements 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~~our collection and ~~endowment life insurance products within~~payment processes and strong collection efforts by 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.independent agents.

March 31, ~~2021~~2022 | 10-Q 36

Table of Contents


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,
(In thousands, except for %) 2021 2020 2020
Net investment income, annualized $ 46,393 45,885 45,920
Average invested assets, at amortized cost 1,107,540 1,071,792 1,057,428
Annualized yield on average invested assets 4.19 % 4.28 % 4.34 %

Annualized net investment income in our Life Insurance segment increased in the three months ended March 31, 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. The annualized yield in the first three 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 challenges in finding investments with comparable 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 primarily due to changes in the market value of a preferred stock exchange traded fund purchased during the first quarter of 2020.

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

~~March 31, 2021 | 10-Q 37~~

~~Table of Contents~~


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

Three Months Ended
March 31,
(In thousands) 2021 2020
Claims and Surrenders:
Death claim benefits $ 2,684 1,725
Surrender benefits 12,251 11,303
Endowment benefits 2,399 2,736
Matured endowment benefits 4,980 3,600
Accident and health benefits 21 27
Other policy benefits 935 769
Total claims and surrenders $ 23,270 20,160

The majority of our claims and surrender benefits in our Life Insurance segment are related to payment of surrender benefits and matured endowment benefits. Policy surrenders increased 8.4% in the three months ended March 31, 2021 as compared to the prior year period and matured endowment benefits increased by 38.3% in the current year. These expenses have been increasing over 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 reaching their stated maturities. These expenses are within expected levels.

The other key component of claims and surrender benefits is death claim benefits, which increased 55.6% in the three months ended March 31, 2021 as compared to the prior year period due to the reasons discussed above in “Current Financial Highlights”.

~~HOME SERVICE INSURANCE~~

We operate in the Home Service Insurance market through our subsidiaries SPLIC, MGLIC and SPFIC, and focus on the life insurance needs of the middle- and lower-income markets, primarily in Louisiana, Mississippi and Arkansas. Premium revenue of 89.4% and 89.7% in the three months ended March 31, 2021 and March 31, 2020, respectively, were from policyholders 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.

~~March 31, 2021 | 10-Q 38~~

~~Table of Contents~~


~~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
March 31,
(In thousands) 2021 2020
Revenues:
Premiums $ 11,969 11,498
Net investment income 3,345 3,332
Realized investment gains (losses), net 223 (1,717)
Other income 2 18
Total revenues 15,539 13,131
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 7,319 6,289
Increase in future policy benefit reserves 1,574 1,325
Policyholders' dividends 10 8
Total insurance benefits paid or provided 8,903 7,622
Commissions 3,926 3,375
Other general expenses 3,794 4,316
Capitalization of deferred policy acquisition costs (1,424) (1,088)
Amortization of deferred policy acquisition costs 835 801
Amortization of cost of insurance acquired 263 250
Total benefits and expenses 16,297 15,276
Loss before federal income tax expense $ (758) (2,145)

~~Premiums.~~ Premiums increased by 4.1% in the three months ended March 31, 2021 compared to the same period in 2020, with 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 policies issued as well as lower premiums in the prior year period due to the onset of the COVID-19 pandemic and stay-at-home orders, which negatively impacted our business. Renewal premiums increased based on continued strong collections by our independent agents.

~~Net Investment Income.~~ Net investment income for the three months ended March 31, 2021 increased slightly compared to the same 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 the COVID-19 pandemic.

~~March 31, 2021 | 10-Q 39~~

~~Table of Contents~~


~~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
		March 31,					March 31,
(In thousands)	(In thousands)		2021		2020	(In thousands)		2022		2021
Claims and Surrenders:	Claims and Surrenders:					Claims and Surrenders:
Death claim benefits	Death claim benefits		$	6,256	4,864	Death claim benefits		$	6,027	6,256
Surrender benefits	Surrender benefits		556		752	Surrender benefits		622		556
Endowment benefits	Endowment benefits		2		3	Endowment benefits		5		2
Matured endowment benefits	Matured endowment benefits		142		153	Matured endowment benefits		127		142
Property claims	Property claims		321		487	Property claims		142		321
Accident and health benefits			38		26
Other policy benefits			4		4
A&H and other policy benefits						A&H and other policy benefits		53		42

Total claims and surrenders	Total claims and surrenders		$	7,319	6,289	Total claims and surrenders		$	6,976	7,319

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%~~decreased 3.7% in the three months ended March 31, ~~2021~~2022, compared to the ~~2020 period~~2021 periods. The decrease in death claim benefits was due primarily to ~~the reasons discussed above in “Current Financial Highlights”.~~a slightly lower volume of reported claims, including COVID-19 related deaths. 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. Property claims decreased due to fewer hurricane property claims.

Other General Expenses. General expenses increased in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to higher employee health benefit costs and insurance department examination fees.

OTHER NON-INSURANCE ENTERPRISES


		Three Months Ended				Three Months Ended
		March 31,				March 31,
(In thousands)	(In thousands)	2021		2020	(In thousands)		2022		2021
Income (loss) before income tax expense	Income (loss) before income tax expense	$	(1,884)	(2,176)	Income (loss) before income tax expense		$	(764)	(1,884)

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 related gains or losses, while expenses consist of other general ~~expenses.~~expenses related to corporate functions. In the three months ended March 31, ~~2021,~~2022, the Other Non-Insurance Enterprises had a loss of ~~$1.9~~$0.8 million compared to a loss of ~~$2.2~~$1.9 million for the ~~three months ended 2020~~same period in 2021, as ~~realized investment gains improved.~~other general expenses decreased in the current year period due to the change of control expenses paid in 2021.

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, ~~2021~~2022 were ~~$1.6~~$1.5 billion, of which ~~90.8%~~88.4% 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.

March 31, ~~2021~~2022 | 10-Q 4037

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

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	Carrying Value	March 31, 2021				December 31, 2020				Carrying Value	March 31, 2022				December 31, 2021
(In thousands, except for %)	(In thousands, except for %)	Amount		%		Amount		%		(In thousands, except for %)	Amount		%		Amount		%
Cash and Invested Assets
Cash, Cash Equivalents and Invested Assets										Cash, Cash Equivalents and Invested Assets
Fixed maturity securities:	Fixed maturity securities:									Fixed maturity securities:
U.S. Treasury and U.S. Government-sponsored enterprises	U.S. Treasury and U.S. Government-sponsored enterprises	$	15,538	1.0	%	$	16,117	1.0	%	U.S. Treasury and U.S. Government-sponsored enterprises	$	14,319	0.9	%	$	15,070	0.9	%
Corporate	Corporate	834,790		53.4	%	877,208		52.8	%	Corporate	814,130		53.1	%	893,008		54.0	%
States and political subdivisions (1)	States and political subdivisions (1)	393,859		25.2	%	409,665		24.7	%	States and political subdivisions (1)	358,395		23.4	%	383,958		23.3	%
Mortgage-backed (2)	Mortgage-backed (2)	132,146		8.4	%	140,184		8.5	%	Mortgage-backed (2)	123,162		8.0	%	133,795		8.1	%
Asset-backed	Asset-backed	44,138		2.8	%	46,091		2.8	%	Asset-backed	45,297		3.0	%	44,676		2.7	%
Foreign governments	Foreign governments	116		—	%	118		—	%	Foreign governments	107		—	%	110		—	%
Total fixed maturity securities	Total fixed maturity securities	1,420,587		90.8	%	1,489,383		89.8	%	Total fixed maturity securities	1,355,410		88.4	%	1,470,617		89.0	%

Cash and cash equivalents	Cash and cash equivalents	19,493		1.2	%	34,131		2.1	%	Cash and cash equivalents	21,298		1.3	%	27,294		1.7	%
Other investments:	Other investments:									Other investments:
Policy loans	Policy loans	82,674		5.3	%	83,318		5.0	%	Policy loans	79,345		5.2	%	80,307		4.9	%
Equity securities	Equity securities	22,366		1.4	%	22,102		1.3	%	Equity securities	13,902		0.9	%	14,844		0.9	%

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	%
Other long-term investments										Other long-term investments	63,927		4.2	%	57,399		3.5	%
Total cash, cash equivalents and invested assets										Total cash, cash equivalents and invested assets	$	1,533,882	100.0	%	$	1,650,461	100.0	%

(1) Includes ~~$161.8~~$154.8 million and ~~$164.0~~$161.8 million of securities guaranteed by third parties at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

(2) Includes ~~$132.0~~$122.9 million and ~~$139.8~~$132.0 million of U.S. Government-sponsored enterprises at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The carrying value of the Company’s fixed maturity securities investment portfolio at March 31, ~~2021~~2022 was $1.4 ~~billion.~~billion compared to $1.5 billion at December 31, 2021. This decline reflects interest rate sensitivity on fixed maturity securities. The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, ~~2021~~2022 did not materially change from December 31, ~~2020~~2021 – the weighted average was “A” at both dates. Our portfolio mix did not materially change during the three months.

Cash and cash equivalents decreased as of March 31, ~~2021 compared to~~2022 from December 31, ~~2020~~2021 due primarily to the ~~purchase~~reinvestment of ~~100% of the Company’s Class B common stock from the Foundation for $9.1 million.~~funds in higher interest rate securities.

~~Real estate and other~~Other long-term investments ~~decreased to $19.9~~increased by $6.5 million as of March 31, ~~2021 as compared to $29.9 million as of~~2022 from December 31, ~~2020 primarily~~2021 due ~~a $8.8 million payment from a Rabbi Trust (which was considered a long-term investment)~~to additional contributions 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.~~limited partnerships.

Obligations of States and Political Subdivisions

The Company’s fixed maturity securities investment portfolio at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 included ~~$393.9~~$358.4 million and ~~$409.7~~$384.0 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~~2022 | 10-Q 4138

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, ~~2021.~~2022.


		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	$	18,182	17,366	3,193	3,073	—	—	21,375	20,439	5.8	%
AA	AA	63,196		59,413	123,848	118,507	12,191	10,838	199,235	188,758	50.9	%	AA	49,708		47,453	116,639	118,395	13,238	12,620	179,585	178,468	50.3	%
A	A	14,779		13,429	125,958	117,391	5,017	4,417	145,754	135,237	36.5	%	A	16,527		16,099	102,645	101,891	4,789	4,410	123,961	122,400	34.5	%
BBB	BBB	3,952		3,669	13,330	12,987	1,511	1,450	18,793	18,106	4.9	%	BBB	2,683		2,548	15,530	15,559	1,458	1,450	19,671	19,557	5.5	%
BB and other	BB and other	4,758		4,428	669	607	—	—	5,427	5,035	1.3	%	BB and other	4,415		4,406	9,388	9,243	—	—	13,803	13,649	3.9	%
Total	Total	$	108,028	101,707	267,112	252,583	18,719	16,705	393,859	370,995	100.0	%	Total	$	91,515	87,872	247,395	248,161	19,485	18,480	358,395	354,513	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	$	1,873	1,862	—	—	—	—	1,873	1,862	0.5	%
AA	AA	43,591		42,435	43,473	41,198	7,633	6,538	94,697	90,171	24.3	%	AA	32,505		31,154	46,278	46,249	7,001	6,522	85,784	83,925	23.7	%
A	A	28,833		26,827	159,425	149,410	7,914	7,145	196,172	183,382	49.4	%	A	28,828		27,941	126,766	127,238	7,622	7,139	163,216	162,318	45.8	%
BBB	BBB	7,250		6,662	35,561	34,211	56	55	42,867	40,928	11.0	%	BBB	4,746		4,458	36,542	36,506	1,836	1,855	43,124	42,819	12.1	%
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	23,563		22,457	37,809	38,168	3,026	2,964	64,398	63,589	17.9	%
Total	Total	$	108,028	101,707	267,112	252,583	18,719	16,705	393,859	370,995	100.0	%	Total	$	91,515	87,872	247,395	248,161	19,485	18,480	358,395	354,513	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, ~~2021.~~2022.


(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	$	64,873	65,009	18.1	%
Utilities	Utilities	65,579		59,591	16.7	%	Utilities	55,101		53,629	15.4	%
Transportation	Transportation	39,432		38,709	10.0	%	Transportation	40,411		42,552	11.3	%

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, ~~2021.~~2022. The Company holds ~~21.1%~~21.2% and ~~10.0%~~12.8% of its municipal bond portfolio in Texas and California issuers, respectively, as of March 31, ~~2021.~~2022. There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal bond portfolio as of March 31, ~~2021.~~2022.

March 31, ~~2021~~2022 | 10-Q 4239

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, ~~2021.~~2022.


March 31, 2021		General Obligation			Special Revenue		Other		Total
March 31, 2022											March 31, 2022	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	$	17,641	16,858	3,193	3,073	—	—	20,834	19,931
AA	AA	21,754		21,407	13,426	12,811	56	55	35,236	34,273	AA	20,732		20,152	12,861	12,821	—	—	33,593	32,973
A	A	—		—	21,385	21,849	—	—	21,385	21,849	A	—		—	19,122	21,827	—	—	19,122	21,827
BBB	BBB	—		—	1,905	1,827	—	—	1,905	1,827	BBB	—		—	1,952	1,824	—	—	1,952	1,824
BB and other	BB and other	—		—	554	508	—	—	554	508	BB and other	—		—	519	504	—	—	519	504
Total	Total	$	42,511	41,666	40,577	40,086	56	55	83,144	81,807	Total	$	38,373	37,010	37,647	40,049	—	—	76,020	77,059
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	$	1,873	1,862	—	—	—	—	1,873	1,862
AA	AA	32,080		31,541	3,299	3,061	—	—	35,379	34,602	AA	29,345		28,221	3,103	3,023	—	—	32,448	31,244
A	A	5,985		5,818	28,939	29,020	—	—	34,924	34,838	A	5,974		5,780	26,294	28,984	—	—	32,268	34,764
BBB	BBB	1,198		1,151	5,483	5,207	56	55	6,737	6,413	BBB	1,181		1,147	5,491	5,252	—	—	6,672	6,399
BB and other	BB and other	—		—	2,856	2,798	—	—	2,856	2,798	BB and other	—		—	2,759	2,790	—	—	2,759	2,790
Total	Total	$	42,511	41,666	40,577	40,086	56	55	83,144	81,807	Total	$	38,373	37,010	37,647	40,049	—	—	76,020	77,059

The table below represents the Company's detailed exposure to municipal bond portfolio in California at March 31, ~~2021.~~2022.


March 31, 2021		General Obligation			Special Revenue		Other		Total
March 31, 2022											March 31, 2022	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	$	—	—	29,405	30,825	2,833	2,729	32,238	33,554
A											A	1,507		1,650	7,362	8,108	—	—	8,869	9,758
BBB											BBB	—		—	4,684	4,647	—	—	4,684	4,647

Total											Total	$	1,507	1,650	41,451	43,580	2,833	2,729	45,791	47,959
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	$	—	—	2,374	2,632	—	—	2,374	2,632
A	A	—		—	4,682	4,726	—	—	4,682	4,726	A	1,507		1,650	15,180	16,465	2,833	2,729	19,520	20,844
BBB	BBB	—		—	4,888	4,669	—	—	4,888	4,669	BBB	—		—	7,996	7,833	—	—	7,996	7,833
BB and other	BB and other	—		—	—	—	—	—	—	—	BB and other	—		—	15,900	16,650	—	—	15,900	16,650
Total	Total	$	1,681	1,650	34,638	33,728	2,898	2,728	39,217	38,106	Total	$	1,507	1,650	41,450	43,580	2,833	2,729	45,790	47,959
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, ~~2021~~2022 | 10-Q 4340

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY AND EQUITY SECURITIES

For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, 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~~Below are our primary capital resources ~~were materially impacted by COVID-19 in~~(based on carrying value of each) as of 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 periods indicated below.

~~Form 10-K~~.


(In thousands)	March 31, 2022		December 31, 2021
Fixed maturity securities	$	1,355,410	1,470,617
Cash and cash equivalents	21,298		27,294

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~~currently anticipate meeting our short-term and long-term cash needs ~~for the next 12 months~~ with cash generated by our insurance operations and from our invested assets. At March 31, ~~2021,~~2022, we had ~~$19.5~~$21.3 million in cash and cash equivalents and $1.5 billion in invested assets. From time-to-time we may raise capital by selling shares in our SIP (as defined below) and we may also access our Credit Facility if needed (both as described below).

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,~~In 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 March 31, 2022, we have not borrowed any money under the Credit Facility and have no immediate plans to do so.

March 31, ~~2021~~2022 | 10-Q 4441

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

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, cash flow from our operations has been sufficient to meet our cash needs. We have not had to liquidate a material amount of investments to pay our expenses and we did not do so in the three months ended March 31, 2022. 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.

Cash from Operations. Cash provided by or used in operating activities is an important liquidity metric because it reflects, during a given period, the amount of cash generated that is available to pay our operating expenses or make strategic acquisitions. In the three months ended March 31, 2022, our operations provided $12.1 million in net cash.

Cash from/used in Investments. 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 new investments. Net cash used in investing activities totaled $19.8 million for the three months ended March 31, 2022. 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 from Financing Activities. Cash provided by financing activities was $1.7 million in the three months ended March 31, 2022, due primarily to the issuance of shares under the SIP.

Trends, Demands and Restrictions on our Uses of Cash

Because claims and surrender benefits are our largest expense, a primary liquidity concern is the risk of either (i) an extraordinary level of early policyholder surrenders, or (ii) higher than expected mortality. In order to mitigate the risk of early policyholder surrenders, we include provisions in our insurance policies, such as surrender charges, that help limit and discourage early withdrawals. 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 and due to other reasons, like the loss of one of our biggest distributors in Venezuela (see Item 3. Legal Proceedings). However, we have been aggressively managing policyholder retention efforts and in the three months ended March 31, 2022, surrender benefits slightly decreased.

Our whole life and endowment products provide the policyholder with alternatives once the policy matures - they can choose to take a lump sum payout or leave the money on deposit at interest with the Company. As of March 31, 2022, 40% of the Company's total insurance in force was in endowment products. Approximately 13% of the endowments in force will mature in the next five years. Policyholder election behavior is unknown, but if too many policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities. Meeting these distributions could require the Company to sell securities at inopportune times to pay policyholder withdrawals. Alternatively, if the policyholders were to leave the money on deposit with the Company at interest, our profitability could be impacted if the product guaranteed rate is higher than the market rate we are earning on our investments. We currently anticipate that our available operating cash flow and capital resources will be adequate to meet our needs for funds, but we will monitor closely our policyholder behavior patterns.

Death claims, which were high in 2021 due in part to COVID, have decreased to normal levels so far in 2022. 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.

March 31, 2022 | 10-Q 42

Table of Contents


CITIZENS, INC.			MANAGEMENT'S DISCUSSION & ANALYSIS

The Credit Facility provides additional liquidity to 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 three 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, 2021, our operations provided $1.8 million in net cash as compared to $14.1 million provided by operations in the same period in 2020. As mentioned above, we used $8.8 million in cash in the quarter to pay Mr. Kolander’s severance. Cash provided by operations was also lower, as surrenders and lower renewal premiums in our international business are not being replaced by new sales. 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 investments. Net cash used in investing activities totaled $7.4 million for the three months ended March 31, 2021 as opposed to $26.2 million used in investing activities for the three months ended March 31, 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 million in the three months ended March 31, 2021, due to the purchase of the Class B common stock from the Foundation.

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 in the three months ended March 31, 2021 and have 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 increased in the first quarter of 2021. 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, ~~2021,~~2022, our domestic insurance subsidiaries were above the required minimum RBC levels.

CICA ~~Ltd.~~International 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

~~March 31, 2021 | 10-Q 45~~

~~Table of Contents~~


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

requires a certain Target Capital Level ("TCL"). As of March 31, ~~2021,~~2022, CICA ~~Ltd.~~International was above the TCL threshold. At the request of the BMA, on April 15, 2021, Citizens and CICA ~~Ltd.~~International entered into a Keep Well Agreement. The Keep Well Agreement requires Citizens to contribute up to $10 million in capital to CICA ~~Ltd.~~International as necessary to ensure that CICA ~~Ltd.~~International has a minimum capital level of 120%. Since CICA ~~Ltd.’s~~International’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.~~International could negatively impact the Company’s capital resources and liquidity.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, ~~2021, the Company is committed to fund investments up to $68.5 million related to private equity funds and other investments. There~~2022, 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 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.

March 31, 2022 | 10-Q 43

Table of Contents


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%~~88.4% of our investment portfolio based on carrying value as of March 31, ~~2021.~~2022. 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%~~2.32% at March 31, ~~2021~~2022 from ~~0.93%~~1.52% at December 31, ~~2020.~~2021. Net unrealized ~~gains~~losses on fixed maturity securities totaled ~~$88.0~~$5.8 million at March 31, ~~2021,~~2022, compared to ~~$167.9~~gains of $126.9 million at December 31, ~~2020,~~2021, 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, ~~2021~~2022 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, ~~2021.~~2022. At March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, 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, ~~2021.~~2022. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective ~~at a~~as of March 31, 2022 to provide reasonable assurance ~~level as~~that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the ~~end of the period covered by this quarterly report.~~SEC and such information is accumulated and reported to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the three months ended March 31, ~~2021,~~2022, 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.

March 31, ~~2021~~2022 | 10-Q 4744

Table of Contents


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 months ended March 31, ~~2021~~2022 from the legal proceedings described in our Form 10-K.

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 months ended March 31, ~~2021~~2022 from the risk factors included in our Form 10-K.

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.~~Not applicable.

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 †						Executive Employment Agreement by and between Citizens, Inc. and Gerald W. Shields, effective as of January 1, 2022 (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on December 21, 2021)
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.

March 31, ~~2021~~2022 | 10-Q 4845

Table of Contents

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, Chief Investment Officer & Treasurer



Date:	May 5, ~~2021~~2022

March 31, ~~2021~~2022 | 10-Q 4946


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

Net investment income, annualized	$	60,976		60,197		60,676
Average invested assets, at amortized cost	1,449,518			1,420,129		1,408,688
Annualized yield on average invested assets	4.21		%	4.24	%	4.31	%