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What changed in CITIZENS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CITIZENS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+331 added−350 removedSource: 10-K (2024-03-14) vs 10-K (2023-03-10)

Top changes in CITIZENS, INC.'s 2023 10-K

331 paragraphs added · 350 removed · 213 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

135 edited+82 added−87 removed42 unchanged
Biggest changeKey operating results (comparison of 2022 v. 2021): ↑ $3.9 million of net investment income ↓ $6.8 million of total insurance benefits paid or provided, partially offset by ↑ $1.8 million of general operating expenses ↓ $1.0 million of premium revenue Revenue Highlights As discussed above, insurance premiums and investment income are our primary sources of revenue and increased by $2.9 million in 2022 compared to 2021. • Insurance premiums declined slightly in 2022 compared to 2021, totaling $173.7 million and $174.7 million, respectively due to: ◦ 4% growth in first year premiums in our Life Insurance segment was more than offset by lower renewal premiums in this segment due to increases in expiring matured endowments; ◦ our Home Service Insurance segment insurance premiums in 2022 decreased 2% compared to 2021; and ◦ our property insurance premiums increased by $1.2 million due to rate increases and the lack of hurricanes in Louisiana in 2022 versus 2021 (Hurricane Ida). • Net investment income increased 6% in 2022 compared to 2021, totaling $65.4 million and $61.5 million, respectively, from a higher average portfolio yield in 2022 as well as a growing invested asset base.
Biggest changeKey operating results (comparison of 2023 v. 2022): ↓ $6.7 million of premium revenue Insurance premiums declined 4% in 2023 compared to 2022, totaling $167.0 million and $173.7 million, respectively due to: • 13% growth in first year premiums in our Life Insurance segment was more than offset by lower renewal premiums in this segment due to increases in surrenders and expiring matured endowments; • our property insurance premiums decreased by $4.1 million due to ceasing this business on June 30, 2023. ↑ $3.8 million of net investment income Net investment income increased 6% in 2023 compared to 2022, totaling $69.3 million and $65.4 million, respectively, from a higher average portfolio yield in 2023 as well as a growing invested asset base.
Future policy benefit reserves reflect the liability established to provide for the payment of policy benefits that we expect to pay in the future and thus generally increase when we have a larger in force block of business due to higher sales and better persistency (i.e., more policies on which we expect to pay future benefits) and decrease when we have lower sales and persistency.
Future policy benefit reserves reflect the liability established to provide for the payment of policy benefits that we expect to pay in the future and thus generally increase when we have a larger in force block of business due to higher sales and persistency (i.e., more policies on which we expect to pay future benefits) and decrease when we have lower sales and persistency.
The regulations also require approval of our service agreements with the applicable regulatory authority in order to prevent insurance subsidiaries from moving large amounts of cash to the less regulated holding company.
The regulations also require prior approval of our service agreements with the applicable regulatory authority in order to prevent insurance subsidiaries from moving large amounts of cash to the less regulated holding company.
In 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.
In order to mitigate the risk of early policyholder surrenders, we include provisions in some of our insurance policies, such as surrender charges, that help limit and discourage early withdrawals.
Approximately 17% 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 its investments at inopportune times to pay policyholder withdrawals.
Approximately 18% 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 its investments at inopportune times to pay policyholder withdrawals.
The impairment was triggered by increases in our carrying value of the Life Insurance segment due to the release of a $43.8 million uncertain tax position in the fourth quarter of 2021 following the expiration of the statute of limitations for the tax year ended December 31, 2017. December 31, 2022 | 10-K 38 Table of Contents CITIZENS, INC.
The impairment was triggered by increases in our carrying value of the Life Insurance segment due to the release of a $43.8 million uncertain tax position in the fourth quarter of 2021 following the expiration of the statute of limitations for the tax year ended December 31, 2017. December 31, 2023 | 10-K 38 Table of Contents CITIZENS, INC.
We also believe that the inflationary environment has led to higher surrenders and lapses in 2022 as well as lower sales, as our policyholders conserve cash due to concerns over inflation and rising costs, particularly in our Home Service Insurance segment, where our customer base is primarily middle- and lower-income individuals.
We also believe that the inflationary environment has led to higher surrenders and lapses in 2023 as well as lower sales, as our policyholders conserve cash due to concerns over inflation and rising costs, particularly in our Home Service Insurance segment, where our customer base is primarily middle- and lower-income individuals.
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. On May 5, 2021, we entered into a Credit Facility with Regions Bank.
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. On May 5, 2021, we entered into a 3-year Credit Facility with Regions Bank.
Non-investment grade securities are the result of downgrades of issuers or securities acquired during acquisitions of other companies, as the Company has not purchased below investment grade securities. December 31, 2022 | 10-K 46 Table of Contents CITIZENS, INC. As of December 31, 2022, the Company held municipal fixed maturity securities that include third-party guarantees.
Non-investment grade securities are the result of downgrades of issuers or securities acquired during acquisitions of other companies, as the Company has not purchased below investment grade securities. December 31, 2023 | 10-K 46 Table of Contents CITIZENS, INC. As of December 31, 2023, the Company held municipal fixed maturity securities that include third-party guarantees.
There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal portfolio as of December 31, 2022. December 31, 2022 | 10-K 47 Table of Contents CITIZENS, INC. The table below represents the Company's detailed exposure to municipal bond portfolio by credit rating in Texas at December 31, 2022.
There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal portfolio as of December 31, 2023. December 31, 2023 | 10-K 47 Table of Contents CITIZENS, INC. The table below represents the Company's detailed exposure to municipal bond portfolio by credit rating in Texas at December 31, 2023.
In addition to the above-mentioned sources of cash, we offer a Stock Investment Plan ("SIP"), whereby investors, policyholders, independent contractors and agents, employees and directors can directly purchase our stock.
In addition to the above-mentioned sources of cash, we offer a Stock Investment Plan ("SIP"), where investors, policyholders, independent contractors and agents, employees and directors can directly purchase our stock.
When assessing the need for a valuation allowance on the unrealized capital loss deferred tax assets, we assert a tax planning strategy to hold a majority of the underlying securities to recovery or maturity.
When assessing the need for a valuation allowance on the unrealized capital loss deferred tax assets, we asserted a tax planning strategy to hold a majority of the underlying securities to recovery or maturity.
OTHER NON-INSURANCE ENTERPRISES Years ended December 31, (In thousands) 2022 2021 Income (loss) before federal income tax $ (4,609) (5,570) 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.
NON-INSURANCE ENTERPRISES Years ended December 31, (In thousands) 2023 2022 2021 Income (loss) before federal income tax $ (5,460) (4,609) (5,570) This operating unit represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under U.S. GAAP, which typically results in a loss.
Our net investment income increased by $3.9 million from 2021 to 2022 due primarily to investment income from our limited partnership investments, a growing diversified invested asset base and reinvesting matured or called fixed income maturity securities into a higher interest rate environment. December 31, 2022 | 10-K 29 Table of Contents CITIZENS, INC.
Our net investment income increased by $3.8 million from 2022 to 2023 due primarily to investment income from our limited partnership investments, a growing diversified invested asset base and reinvesting matured or called fixed income maturity securities into a higher interest rate environment. December 31, 2023 | 10-K 29 Table of Contents CITIZENS, INC.
The Factors that Drive our Operating Results We see the following as the primary factors that drive our operating results: • Sales (e.g., premium revenues) • Our investments • Death claims and surrenders • Operating expenses Premium revenues and investment income are our two primary sources of income and thus key to our profitability.
The Factors that Drive our Operating Results We see the following as the primary factors that drive our operating results: • Sales (i.e. , premium revenues) • Investments • Claims and surrenders • Operating expenses Premium revenues and investment income are our two primary sources of income and thus key to our profitability.
Risk Factors , these laws and regulations require, among other things, that our insurance subsidiaries maintain minimum capital and surplus requirements, which limit the amount of dividends that can be paid to the holding company.
Risk Factors , these laws and regulations require, among other things, that our insurance subsidiaries maintain minimum capital and surplus requirements, which limit the amount of dividends that can be paid to Citizens.
Our 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 December 31, 2022, 38% of the Company's total insurance in force was in endowment products.
Our 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 December 31, 2023, 35% of the Company's total insurance in force was in endowment products.
PARENT COMPANY LIQUIDITY AND CAPITAL RESOURCES Citizens is a holding company and has had 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.
PARENT COMPANY LIQUIDITY AND CAPITAL RESOURCES Citizens is a holding company and has minimal operations of its own. Our assets consist of the capital stock of our subsidiaries, cash and investments. Our liquidity requirements are met primarily from two sources: cash we receive from our operating subsidiaries and our invested assets.
As discussed above, this decline reflects the impact of interest rate sensitivity on the fair value of our fixed maturity securities. The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of December 31, 2022 did not materially change from December 31, 2021 – the weighted average was “A” at both dates.
As discussed above, this increase primarily reflects the impact of interest rate sensitivity on the fair value of our fixed maturity securities. The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of December 31, 2023 did not materially change from December 31, 2022 – the weighted average was “A” at both dates.
However, municipal fixed maturity securities from Texas and California comprise the most significant concentration of the total municipal holdings portfolio as of December 31, 2022. The Company holds 22% and 13% of its municipal holdings in Texas and California issuers, respectively, as of December 31, 2022.
However, municipal fixed maturity securities from Texas and California comprise the most significant concentration of the total municipal holdings portfolio as of December 31, 2023. The Company holds 22% and 15% of its municipal holdings in Texas and California issuers, respectively, as of December 31, 2023.
Additionally, we have a parental guarantee December 31, 2022 | 10-K 51 Table of Contents CITIZENS, INC. between Citizens and CICA, Citizens' wholly-owned subsidiary domiciled in Colorado, to maintain a RBC level above 350%. At December 31, 2022, our domestic insurance subsidiaries were above the required minimum RBC levels. CICA International is a Bermuda domiciled company.
Additionally, we have a parental guarantee between Citizens and CICA Domestic, Citizens' wholly-owned subsidiary domiciled in Colorado, to maintain a RBC level above 350%. At December 31, 2023, our domestic insurance subsidiaries were above the required minimum RBC levels. December 31, 2023 | 10-K 51 Table of Contents CITIZENS, INC.
For the year ended December 31, 2022, changes in market conditions including rising interest rates, resulted in deferred tax assets related to the net unrealized capital losses in our investment portfolio.
For the years ended December 31, 2023 and 2022, changes in market conditions including rising interest rates, resulted in deferred tax assets related to the net unrealized capital losses in our investment portfolio.
Years ended December 31, (In thousands) 2022 2021 Direct premiums $ 176,973 178,806 Reinsurance assumed 74 84 Reinsurance ceded (3,333) (4,162) Net premiums $ 173,714 174,728 Our insurance subsidiaries monitor the solvency of their reinsurers in seeking to minimize the risk of loss in the event of default by a reinsurer.
Years ended December 31, (In thousands) 2023 2022 2021 Direct premiums $ 170,557 176,973 178,806 Reinsurance assumed 68 74 84 Reinsurance ceded (3,586) (3,333) (4,162) Net premiums $ 167,039 173,714 174,728 Our insurance subsidiaries monitor the solvency of their reinsurers in seeking to minimize the risk of loss in the event of default by a reinsurer.
Net cash outflows from investing activities totaled $60.7 million and $41.1 million for the years ended December 31, 2022 and 2021, respectively. The investing activities fluctuate from period to period due to timing of securities activities such as calls and maturities and reinvestment of those funds.
Net cash outflows from investing activities totaled $14.5 million and $60.7 million for the years ended December 31, 2023 and 2022, respectively. The investing activities fluctuate from period to period due to timing of securities activities such as calls and maturities and reinvestment of those funds.
Fixed maturity securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity.
Fixed maturity securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity. The Company currently does not hold any fixed maturity securities classified as held-to-maturity.
Claims and surrender benefits, which are the largest portion of our expenses in the Home Service Insurance segment are summarized below: Years ended December 31, (In thousands) 2022 2021 Claims and surrenders: Death claim benefits $ 19,667 23,220 Surrender benefits 3,189 2,199 Endowment benefits 13 7 Matured endowment benefits 581 595 Property claims 780 2,112 Accident and health benefits 115 197 Other policy benefits 14 15 Total claims and surrenders $ 24,359 28,345 The majority of claims and surrender benefits in our Home Service Insurance segment relate to death claim benefits.
Claims and surrender benefits, which are the largest portion of our expenses in the Home Service Insurance segment are summarized below: Years ended December 31, (In thousands) 2023 2022 2021 Claims and surrenders: Death claim benefits $ 17,655 19,667 23,220 Surrender benefits 3,394 3,189 2,199 Endowment benefits 7 13 7 Matured endowment benefits 603 581 595 Property claims 699 780 2,112 Accident and health benefits 193 115 197 Other policy benefits 14 14 15 Total claims and surrenders $ 22,565 24,359 28,345 The majority of claims and surrender benefits in our Home Service Insurance segment are death claim benefits.
ECONOMIC AND INSURANCE INDUSTRY DEVELOPMENTS The following significant trends and developments are currently impacting our business and industry: • Increase in Interest Rates; Volatility in Equity and Credit Markets; Inflation. The material uptick in interest rates over the past year has benefited the life insurance sector with respect to increased yields, net investment income and spreads.
These significant trends and developments have and are impacting our business and industry as follows: • Increase in Interest Rates; Volatility in Equity and Credit Markets; Inflation. The material uptick in interest rates over the past year has benefited the life insurance sector with respect to increased yields, net investment income and spreads.
Some of our policies include pandemic exclusions, and we carry reinsurance to offset some of these risks. However, death claim benefits decreased by 17.9% in 2022 compared to 2021.
Some of our policies include pandemic exclusions, and we carry reinsurance to offset some of these risks. However, death claim benefits decreased by 13% in 2023 compared to 2022.
Years ended December 31, (In thousands) 2022 2021 Claims and surrenders: Death claim benefits $ 6,091 8,160 Surrender benefits 45,554 49,439 Endowment benefits 8,851 9,565 Matured endowment benefits 30,897 19,709 Accident and health benefits 96 135 Other policy benefits 4,087 4,382 Total claims and surrenders $ 95,576 91,390 The majority of our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits and matured endowment benefits.
Years ended December 31, (In thousands) 2023 2022 2021 Claims and surrenders: Death claim benefits $ 4,803 6,091 8,160 Surrender benefits 53,462 45,554 49,439 Endowment benefits 8,289 8,851 9,565 Matured endowment benefits 41,252 30,897 19,709 Accident and health benefits 265 96 135 Other policy benefits 5,357 4,087 4,382 Total claims and surrenders $ 113,428 95,576 91,390 The majority of our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits and matured endowment benefits.
LIQUIDITY AND CAPITAL RESOURCES Below are our primary capital resources (based on carrying value) at each of December 31, 2022 and 2021. (In thousands, except for %) 2022 2021 Fixed maturity securities $ 1,179,619 1,470,617 Cash and cash equivalents 22,973 27,294 Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations.
LIQUIDITY AND CAPITAL RESOURCES Below are our primary capital resources (based on carrying value) at each of December 31, 2023 and 2022. (In thousands, except for %) 2023 2022 Fixed maturity securities $ 1,238,981 1,179,619 Cash and cash equivalents 26,997 22,973 Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations.
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 Part I, Item 3. Legal Proceedings ).
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 in 2018.
LIFE INSURANCE Our Life Insurance segment primarily issues ordinary whole life insurance and endowment policies in U.S. dollar-denominated amounts to non-U.S. residents in more than 70 countries through almost 1,000 active independent marketing consultants as of December 31, 2022.
LIFE INSURANCE Our Life Insurance segment primarily issues ordinary whole life insurance and endowment policies in U.S. dollar-denominated amounts to non-U.S. residents in over 75 countries through over 1,000 active independent marketing consultants as of December 31, 2023.
(2) Includes $98.8 million and $133.7 million of U.S. Government agencies and government-sponsored enterprises at December 31, 2022 and 2021, respectively. The carrying value of the Company’s fixed maturity securities investment portfolio at December 31, 2022 was $1.2 billion compared to $1.5 billion at December 31, 2021.
(2) Includes $96.1 million and $98.8 million of U.S. Government agencies and government-sponsored enterprises at December 31, 2023 and 2022, respectively. The carrying value of the Company’s fixed maturity securities investment portfolio at December 31, 2023 was $1.24 billion compared to $1.18 billion at December 31, 2022.
Year Life Insurance Home Service Insurance Consolidated 2022 4.40 % 4.48 % 4.40 % 2021 4.26 % 4.37 % 4.24 % Yields on investment assets vary between segment operations due to different portfolio mixes and durations in the segments. The consolidated yields include our other non-insurance enterprises.
Year Life Insurance Home Service Insurance Consolidated 2023 4.58 % 4.53 % 4.56 % 2022 4.40 % 4.48 % 4.40 % 2021 4.26 % 4.37 % 4.24 % Yields on invested assets vary between segment operations due to different portfolio mixes and durations in each segment's portfolio. The consolidated yields include our other non-insurance enterprises.
While we believe that our estimates, assumptions and judgments are reasonable, they are based on information presently available. Changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our financial position or results of operations.
While we believe that our estimates, assumptions and judgments are reasonable, they are based on information presently December 31, 2023 | 10-K 52 Table of Contents CITIZENS, INC. available. Changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our financial position or results of operations.
As the inflationary environment continues, the industry may see policy lapses rise, especially among lower and middle-income customers. • Sustained Low Interest Rate Environment Prior to 2022. Market interest rates are a key driver of our results.
As the inflationary December 31, 2023 | 10-K 30 Table of Contents CITIZENS, INC. environment continues, the industry may see policy lapses rise, especially among lower and middle-income customers. • Sustained Low Interest Rate Environment Prior to 2022. Market interest rates are a key driver of our results.
CICA PR is a Puerto Rico domiciled company. The Insurance Code does not specifically set forth minimum capital and surplus standards, but rather requires that an insurer submit a business plan for approval to the OIC that includes proposed minimum capital and surplus.
Citizens may have to contribute capital to CICA Domestic to maintain the required RBC ratio. CICA International is a Puerto Rico domiciled company. The Insurance Code does not specifically set forth minimum capital and surplus standards, but rather requires that an insurer submit a business plan for approval to the OIC that includes proposed minimum capital and surplus.
The credit ratings and default risk of our fixed maturity securities were not significantly impacted by the rise in interest rates and volatility in 2022 and because we intend to hold the long-term investments to maturity, we do not believe that the current unrealized loss is indicative of our long-term financial strength.
The credit ratings and default risk of our fixed maturity securities were not significantly impacted by the rise in interest rates in 2023 and because we intend to hold the long-term investments to maturity, we do not believe that the current unrealized loss is indicative of our long-term financial strength, as we expect the market values to recover prior to the maturity date of most of these investments.
This includes a further significant decline in the value of December 31, 2022 | 10-K 55 Table of Contents CITIZENS, INC. assets incorporated into our tax planning strategies which could lead to an increase in our valuation allowance on deferred tax assets having an adverse effect on current and future results. RECENT ACCOUNTING PRONOUNCEMENTS See Item 8.
This includes a further significant decline in the value of assets incorporated into our tax planning strategies which could lead to an increase in our valuation allowance on deferred tax assets having an adverse effect on current and future results. RECENT ACCOUNTING PRONOUNCEMENTS See
Cash provided by operating activities is an important liquidity metric because it reflects, during a given period, the amount of cash generated that is available to pay our operating expenses, invest December 31, 2022 | 10-K 50 Table of Contents CITIZENS, INC. in our business or make strategic acquisitions.
Cash provided by or used in operating activities is an important liquidity metric because it reflects, during a given period, the amount of cash generated that is available to pay our operating expenses, invest in our business or make strategic acquisitions.
See the discussion under Segment Operations below for detailed analysis. The amount of insurance, number of policies, and average face amounts for ordinary life policies issued during the periods indicated are shown below.
Our insurance operations are the primary focus of the Company, as those operations generate most of our income. See the discussion under Segment Operations below for detailed analysis. The amount of insurance, number of policies, and average face amounts for ordinary life policies issued during the periods indicated are shown below.
CICA International, a wholly-owned subsidiary of Citizens, is considered a controlled foreign corporation for U.S. federal tax purposes. As a result, the insurance activity of CICA International is subject to Subpart F of the IRC and is included in Citizens taxable income on its U.S. federal income tax return.
CICA International and CICA Bermuda, wholly-owned subsidiaries of Citizens, are considered controlled foreign corporations for U.S. federal tax purposes. As a result, the insurance activity of CICA International and CICA Bermuda are subject to Subpart F of the Internal Revenue Code and are included in Citizens taxable income on its U.S. federal income tax return.
As older endowment and annuity products are maturing, the guaranteed interest rates may be higher than current yields; ◦ Products sold during the last several years with lower interest rate guarantees may be surrendered or lapsed, as customers look to invest in higher interest rate products; or ◦ Because products may have been priced with assumptions of higher interest rates (and higher interest earned on supporting assets), life insurance companies may have to December 31, 2022 | 10-K 30 Table of Contents CITIZENS, INC. increase reserves, trigger loss recognition events related to policy liabilities, accelerate amortization of DAC or COIA, and potentially impair intangible assets. • Impact of COVID-19.
As older endowment and annuity products are maturing, the guaranteed interest rates may be higher than current yields; ◦ Products sold during the last several years with lower interest rate guarantees may be surrendered or lapsed, as customers look to invest in higher interest rate products; or ◦ Because products may have been priced with assumptions of higher interest rates (and higher interest earned on supporting assets), life insurance companies may have to increase reserves or trigger loss recognition that could accelerate amortization of COIA. • Impact of COVID-19.
Financial Statements and Supplementary Data and "Accounting Pronouncements" in Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements.
Financial Statements and Supplementary Data and Part IV, Item 15, Note 1 "Significant Accounting Policies" and "Accounting Pronouncements" in the notes to our consolidated financial statements.
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 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 sets forth income (loss) before federal income taxes by segment during the periods indicated.
Years ended December 31, (In millions) 2022 2021 Direct written life insurance in force $ 4,797 4,628 Reinsurance assumed 4 4 Reinsurance ceded (544) (466) Net life insurance in force $ 4,257 4,166 Our property insurance company, SPFIC, currently carries first and second event catastrophe reinsurance coverage of $11.0 million per event and a retention level of $1.4 million per event.
Years ended December 31, (In millions) 2023 2022 2021 Direct written life insurance in force $ 4,922 4,797 4,628 Reinsurance assumed 4 4 4 Reinsurance ceded (620) (544) (466) Net life insurance in force $ 4,306 4,257 4,166 Our property insurance company, SPFIC, carried first and second event catastrophe reinsurance coverage of $11.0 million per event and a retention level of $2.4 million per event until it ceased operations on June 30, 2023.
Investment related gains and losses can cause significant fluctuations from period to period and are not indicative of our operating results. We believe that investment related gains and losses, whether realized from dispositions or unrealized from changes in market prices of equity securities, have no bearing in understanding our reported results or in evaluating the economic performance of our business.
We believe that investment related gains and losses, whether realized from dispositions or unrealized from changes in market prices of equity securities, have no bearing in understanding our reported results or in evaluating the economic performance of our business. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings.
The Company did not record any credit valuation allowances on fixed maturity securities in 2022 or 2021. December 31, 2022 | 10-K 48 Table of Contents CITIZENS, INC. Gross unrealized losses on AFS fixed maturity securities amounted to $205.3 million as of December 31, 2022 and $3.0 million as of December 31, 2021.
The Company did not record any credit valuation allowances on fixed maturity securities in 2023 or 2022. Gross unrealized losses on AFS fixed maturity securities amounted to $158.7 million as of December 31, 2023 and $205.3 million as of December 31, 2022.
In the year ended December 31, 2022, our operations provided $56.9 million in net cash. We manage our insurance operations as described herein in order to ensure that we have stable and reliable sources of cash flows to meet our obligations.
In the year ended December 31, 2023, our operations provided $22.1 million of net cash. We manage our insurance operations as described herein in order to ensure that we have stable and reliable sources of cash flows to meet our December 31, 2023 | 10-K 49 Table of Contents CITIZENS, INC. obligations.
Securities not classified as held-to-maturity are classified as AFS and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income (loss) and do not affect earnings until realized. The Company currently does not hold any fixed maturity securities classified as held-to-maturity.
Fixed maturity securities classified as AFS are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income (loss) and are not reported in earnings until realized. Our fixed maturity securities consist primarily of bonds classified as AFS.
Years ended December 31, (In thousands, except for %) 2022 2021 Country: Colombia $ 25,181 20.6 % $ 24,829 20.2 % Taiwan 18,236 14.9 19,042 15.5 Venezuela 16,429 13.4 17,788 14.5 Ecuador 12,992 10.6 13,115 10.7 Argentina 9,251 7.6 9,160 7.5 Other Non-U.S. 40,172 32.9 38,871 31.6 Total $ 122,261 100.0 % $ 122,805 100.0 % The five countries listed above represented the majority of the new and renewal premiums in both 2022 and 2021.
Years ended December 31, (In thousands, except for %) 2023 2022 2021 Country: Colombia $ 25,453 21.2 % $ 25,181 20.6 % $ 24,829 20.2 % Taiwan 17,760 14.8 18,236 14.9 19,042 15.5 Venezuela 15,143 12.6 16,429 13.4 17,788 14.5 Ecuador 13,379 11.1 12,992 10.6 13,115 10.7 Argentina 9,533 7.9 9,251 7.6 9,160 7.5 Other Non-U.S. 38,943 32.4 40,172 32.9 38,871 31.6 Total $ 120,211 100.0 % $ 122,261 100.0 % $ 122,805 100.0 % Domestic Premiums.
Throughout the MD&A and in Item 1 - Business , we describe the actions and initiatives that are taken to increase sales and improve retention, how we performed in 2022, and how we view trends with respect to sales and retention.
Throughout the MD&A and in Item 1 - Business , we describe the actions and initiatives that we are taking to increase sales and improve retention, sales performance in each period and as compared to prior periods, and how we view trends with respect to sales and retention.
The ability to make payments to the holding company is limited by applicable laws and regulations of Bermuda (and as of January 1, 2023, Puerto Rico), and U.S. states of domicile which subject insurance operations to significant regulatory restrictions. As discussed in Part I, Item 1, Business and Part I. Item 1A.
The ability to receive dividends from our insurance subsidiaries is limited by applicable laws and regulations of Puerto Rico and our U.S. states of domicile (Colorado, Louisiana and Mississippi), which subject insurance operations to significant regulatory restrictions. As discussed in Part I, Item 1, Business and Part I. Item 1A.
Higher interest rates typically reduce the market values of fixed income assets, as the interest payments from existing fixed income assets become less competitive relative to newer higher rate fixed income instruments. Long duration fixed maturity securities were particularly impacted by the rising rates in 2022.
Higher interest rates typically reduce the market values of fixed income assets, as the interest payments from existing fixed income assets become less competitive relative to newer higher rate fixed income instruments.
We continue to work on managing controllable operating expenses while investing in growth initiatives. Capitalization of Deferred Policy Acquisition Costs ("DAC"). We capitalize costs related to successful sales of our insurance products, which include certain commissions, policy issuance costs, and underwriting and agency expenses. These costs vary based upon amounts or premiums received related to new and renewal business.
We capitalize costs related to successful sales of our insurance products, which include certain commissions, policy issuance costs, and underwriting and agency expenses. These costs vary based upon amounts or premiums received related to new and renewal business.
Years ended December 31, (In thousands) 2022 2021 Revenues: Premiums: Life insurance $ 167,586 169,801 Accident and health insurance 1,278 1,250 Property insurance 4,850 3,677 Net investment income 65,426 61,495 Investment related gains (losses) (10,291) 10,991 Other income 3,675 3,332 Total revenues $ 232,524 250,546 Total premiums decreased slightly due to lower Life insurance premiums, which declined slightly, somewhat offset by higher property insurance premiums.
Years ended December 31, (In thousands) 2023 2022 2021 Revenues: Premiums: Life insurance $ 164,609 167,586 169,801 Accident and health insurance 1,637 1,278 1,250 Property insurance 793 4,850 3,677 Net investment income 69,254 65,426 61,495 Investment related gains (losses) 760 (10,291) 10,991 Other income 3,627 3,675 3,332 Total revenues $ 240,680 232,524 250,546 Total revenues increased in 2023, as we had investment related gains, versus losses in 2022, and higher net investment income.
The annualized yield increased by 16 basis points in 2022 compared to 2021 as a result of the rising interest rate environment. Investment Related Gains (Losses).
The annualized yield increased by 16 basis points in 2023 compared to 2022 as a result of the rising interest rate environment. Investment Related Gains (Losses). We recorded an investment related gain of $0.8 million during 2023, compared to a loss of $10.3 million in 2022.
December 31, 2022 | 10-K 34 Table of Contents CITIZENS, INC. REVENUES Our revenues are primarily generated from insurance renewal premiums and investment income from invested assets.
December 31, 2023 | 10-K 34 Table of Contents CITIZENS, INC. REVENUES Our revenues are primarily generated from insurance renewal premiums and investment income from invested assets. The implementation of LDTI did not impact our revenues; for a discussion of 2022 to 2021 comparisons, see the 2022 10-K.
Fair Value Measurements , changes in fair values of our equity securities are reflected as investment related gains or losses, in addition to executed transactions that result in a gain or loss.
We did not sell all of these investments; however, the changes in fair values of our equity securities are reflected as investment related gains or losses in our income statement, in addition to executed transactions that result in a gain or loss. Other Income .
Government-sponsored enterprises $ 13,278 1.0 % $ 15,070 0.9 % Corporate 715,645 52.5 893,008 54.0 Municipal bonds (1) 307,358 22.5 383,958 23.3 Mortgage-backed (2) 99,995 7.3 133,795 8.1 Asset-backed 43,242 3.2 44,676 2.7 Foreign governments 101 — 110 — Total fixed maturity securities 1,179,619 86.5 1,470,617 89.0 Short-term investments 1,241 0.1 — — Cash and cash equivalents 22,973 1.7 27,294 1.7 Other investments: Policy loans 78,773 5.8 80,307 4.9 Equity securities 11,590 0.8 14,844 0.9 Other long-term investments 69,558 5.1 57,399 3.5 Total cash and invested assets $ 1,363,754 100.0 % $ 1,650,461 100.0 % (1) Includes $133.2 million and $158.6 million of securities guaranteed by third parties at December 31, 2022 and 2021, respectively.
Government-sponsored enterprises $ 9,715 0.7 % $ 13,278 1.0 % Corporate 787,607 55.1 715,645 52.5 Municipal bonds (1) 287,231 20.1 307,358 22.5 Mortgage-backed (2) 97,294 6.8 99,995 7.3 Asset-backed 57,134 4.0 43,242 3.2 Foreign governments — — 101 — Total fixed maturity securities 1,238,981 86.7 1,179,619 86.5 Short-term investments — — 1,241 0.1 Cash and cash equivalents 26,997 1.8 22,973 1.7 Other investments: Policy loans 75,359 5.3 78,773 5.8 Equity securities 5,282 0.4 11,590 0.8 Other long-term investments 82,725 5.8 69,558 5.1 Total cash and invested assets $ 1,429,344 100.0 % $ 1,363,754 100.0 % (1) Includes $124.2 million and $133.2 million of securities guaranteed by third parties at December 31, 2023 and 2022, respectively.
FINANCIAL EVENTS THAT MATERIALLY IMPACTED OUR BUSINESS IN 2022 AND 2021 EVENTS THAT IMPACTED 2022 RESULTS Impact of Inflation and Rising Interest As discussed above, the impact of inflation, which has led to market volatility and rising interest rates, had a material impact on both our results of operations and balance sheet in 2022.
In addition to factors described in Part I, Item 1A, "Risk Factors", the following events may impact our results of operations or financial condition: Inflation and Market Volatility As discussed above, the impact of inflation, which has led to market volatility and rising interest rates, had a material impact on both our results of operations and balance sheet in both 2022 and 2023.
Death claim benefits decreased 15% in 2022 compared to 2021 due to a lower volume of reported claims, including COVID-19 related deaths. Mortality experience is closely monitored by the Company and can fluctuate based on reported claims as a key performance indicator. Surrender benefits increased in 2022 compared to 2021.
Death claim benefits decreased 10% in 2023 compared to 2022 due to a lower volume of reported claims. We believe death claims in 2021, and to a lesser extent in 2022 were impacted by COVID-19. Mortality experience is closely monitored by the Company and can fluctuate. Surrender benefits increased in 2023 compared to 2022.
Cash flow projections and cash flow tests under various market interest rate scenarios are performed annually to assist in evaluating liquidity needs and adequacy. Cash from Operating Activities.
See Contractual Obligations and Off-balance Sheet Arrangements below for a discussion of known and estimated cash needs. Cash flow projections and cash flow tests under various market interest rate scenarios are performed annually to assist in evaluating liquidity needs and adequacy. Cash from Operating Activities.
Other income consists primarily of supplemental contracts issued to policyholders in our Life Insurance segment upon the surrender or maturity of their original policies. We believe this income has been increasing due to a higher level of matured endowment benefits as well as our retention initiatives. December 31, 2022 | 10-K 36 Table of Contents CITIZENS, INC.
Other income consists primarily of supplemental contracts issued to policyholders in our Life Insurance segment upon the surrender or maturity of their original policies. December 31, 2023 | 10-K 36 Table of Contents CITIZENS, INC.
Thus, SPFIC is responsible for the first $0.8 million of incurred claims and any claims in excess of $11.0 million per event. In addition, SPFIC shares responsibility with our reinsurers for up to an additional $0.6 million of incurred claims should total incurred claims reach $11.0 million per event. December 31, 2022 | 10-K 49 Table of Contents CITIZENS, INC.
Thus, SPFIC was responsible for the first $1.0 million of incurred claims and any claims in excess of $11.0 million per event. In addition, SPFIC shared responsibility with our reinsurers for up to an additional $1.4 million of incurred claims should total incurred claims reach $11.0 million per event.
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. We experienced increased death claim benefits in 2021, primarily due to the COVID-19 pandemic.
We currently anticipate that our available operating cash flow and capital resources will be adequate to meet our need for funds, but we will monitor closely our policyholder behavior patterns.
Renewal premiums declined slightly in 2022 compared to 2021; we believe the decline in Life Insurance segment renewal premiums is due to the impact from a higher level of surrenders during the last few years and increasing matured endowment benefits. Our first year premiums declined 1% in 2022 compared to 2021.
Our renewal premiums comprised 88% of our total premium revenue in 2023 and 90% in 2022. Renewal premiums declined by 5% in 2023 compared to 2022; as discussed above, the decline in Life Insurance segment renewal premiums is due to the impact from a higher level of surrenders during the last few years and increasing matured endowment benefits.
Revenue in this operating unit consists primarily of net investment income and investment related gains or losses, while expenses consist of other general expenses.
Revenue in this operating unit consists primarily of net investment income and investment related gains or losses, while expenses consist of other general expenses related to corporate functions. The loss reported for 2023 increased as other general expenses increased for reasons discussed above.
CONSOLIDATED RESULTS OF OPERATIONS Our Operating Segments We manage our business in two operating segments: Life Insurance and Home Service Insurance. See Part I. Item 1, Business for a discussion about the business operated in each segment. Our insurance operations are the primary focus of the Company, as those operations generate most of our income.
December 31, 2023 | 10-K 33 Table of Contents CITIZENS, INC. CONSOLIDATED RESULTS OF OPERATIONS Our Operating Segments We manage our business in two operating segments: Life Insurance and Home Service Insurance. See Part I. Item 1, Business for a discussion about the business operated in each segment.
REINSURANCE As is customary among insurance companies, our insurance company subsidiaries reinsure, with other companies, portions of the life insurance risks they underwrite. A primary purpose of reinsurance agreements is to enable an insurance company to reduce the amount of risk by reinsuring the amount exceeding the maximum amount the insurance company is willing to retain.
A primary purpose of reinsurance agreements is to enable an insurance company to reduce the amount of risk by reinsuring the amount exceeding the maximum amount the insurance company is willing to retain.
Our net investment income and investment performance is summarized as follows: Years ended December 31, (In thousands, except for %) 2022 2021 Gross investment income: Fixed maturity securities $ 58,400 55,579 Equity securities 650 1,024 Policy loans 6,189 6,420 Other long-term investments 2,535 809 Other 246 54 Total investment income 68,020 63,886 Less investment expenses (2,594) (2,391) Net investment income $ 65,426 61,495 Average invested assets, at amortized cost $ 1,488,408 1,451,701 Yield on average invested assets 4.40 % 4.24 % Net investment income increased 6% to $65.4 million in 2022 compared to $61.5 million in 2021 driven by a growing diversified asset base as well as the rising interest rate environment.
Our net investment income and investment performance are summarized as follows: Years ended December 31, (In thousands, except for %) 2023 2022 2021 Gross investment income: Fixed maturity securities $ 60,127 58,400 55,579 Equity securities 630 650 1,024 Policy loans 6,011 6,189 6,420 Other long-term investments 4,509 2,535 809 Other 576 246 54 Total investment income 71,853 68,020 63,886 Less investment expenses (2,599) (2,594) (2,391) Net investment income $ 69,254 65,426 61,495 Average invested assets, at amortized cost $ 1,517,685 1,488,408 1,451,701 Yield on average invested assets 4.56 % 4.40 % 4.24 % Due to insurance regulations, fixed maturity securities constitute the vast majority, or 88%, of our investment portfolio based on fair value and thus provide the vast majority of our investment income.
The market volatility affected the fair value of our equity securities, leading to investment related losses of $10.3 million in 2022, compared to net gains $11.0 million in 2021. Investment related losses in 2022 (and gains in 2021) derive principally from our investments in equity securities and includes unrealized losses (and gains) from market price changes during the period.
Our investment related gains and losses were a gain of $0.8 million in 2023, a loss of $10.3 million in 2022 and a gain of $11.0 million in 2021. Investment related gains and losses derive principally from our investments in equity securities and include unrealized gains and losses from market price changes in these equities during the period.
This increase in gross unrealized losses during 2022 was a result of the increase in average market interest rates compared to 2021. Information on both unrealized and realized gains and losses by category is set forth in Note 2. Investments of the notes to our consolidated financial statements.
This decrease in gross unrealized losses during 2023 was a result of the increase in average market interest rates at the end of 2023 as compared to 2022. December 31, 2023 | 10-K 48 Table of Contents CITIZENS, INC. Information on both unrealized and realized gains and losses by category is set forth in Note 2.
Our Home Service Insurance segment first year premiums declined, which we believe is attributed to inflationary pressures and the cessation of COVID-19 government aid programs in 2022. , Renewal premiums in our Life Insurance segment declined primarily due to impact from a higher level of surrenders during the last few years and from matured endowment benefits, which we expected due to contractual expiration dates.
Renewal premiums declined primarily from our Life Insurance segment due to the impact from a higher level of surrenders during the last few years (and thus a lower amount of policies paying renewal premiums) and from matured endowment benefits, which we expected due to contractual expiration dates.
December 31, (In thousands, except for %) 2022 % 2021 % AAA $ 36,254 3.1 % $ 29,572 2.0 % AA 355,615 30.1 425,996 29.0 A 331,840 28.2 418,465 28.5 BBB 440,457 37.3 565,923 38.5 BB and other 15,453 1.3 30,661 2.0 Totals $ 1,179,619 100.0 % $ 1,470,617 100.0 % The Company made new investments in investment grade bonds during 2022.
December 31, (In thousands, except for %) 2023 % 2022 % AAA $ 36,233 2.9 % $ 36,254 3.1 % AA 337,841 27.3 355,615 30.1 A 394,158 31.8 331,840 28.2 BBB 463,581 37.4 440,457 37.3 BB and other 7,168 0.6 15,453 1.3 Totals $ 1,238,981 100.0 % $ 1,179,619 100.0 % The Company made new investments in investment grade bonds during 2023.
See Part IV, Item 15, Note 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.
See Part IV, Item 15, Note 7, Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of the Credit Facility. The Credit Facility may provide additional liquidity to the Company. As of the date of this Form 10-K, we have not borrowed any money under the Credit Facility.
Due to the 0% enacted tax rate in Bermuda there are no deferred taxes recorded for CICA International's temporary differences. As required by U.S. GAAP, we evaluated the recoverability of deferred tax assets and the establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized.
GAAP, we evaluated the recoverability of deferred tax assets and the establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized.
We anticipated the $11.2 million increase in 2022 based upon the contractual maturity dates and expect continued increases in matured endowment benefits over the next few years as these contracts expire. • Property claim expenses decreased 63% in 2022 compared to 2021 due to no hurricanes impacting Louisiana in 2022. Increase in Future Policy Benefit Reserves.
We anticipated the $10.4 million increase in 2023 based upon the contractual maturity dates and expect continued increases in matured endowment benefits over the next few years as more of these contracts expire. Increase (Decrease) in Future Policy Benefit Reserves.
Due to these investment related losses, our net loss per share of Class A common stock was $0.13 for the year ended December 31, 2022.
Our net income per diluted share of Class A common stock was $0.48 for the year ended December 31, 2023.
Policy surrenders decreased 8% in 2022 as compared to 2021 and matured endowment benefits increased by 57% in 2022 as compared to 2021. Policy surrenders decreased the past couple of years as we have instituted new programs seeking to curb surrenders. Many of our endowment policies are reaching their contractual maturity dates and thus matured endowment benefits are increasing.
Policy surrenders and matured endowment benefits increased in 2023 as compared to 2022. Many of our endowment policies are reaching their contractual maturity dates and thus matured endowment benefits are increasing. We expect this trend to continue over the next few years.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeLegal Proceedings ); • Foreign companies with locally operated subsidiaries that are registered in those countries and offer both local jurisdiction-regulated products in local currency and off-shore U.S. dollar-denominated policies. This arrangement creates competition in that the U.S. dollar-denominated policies are cross-sold with high-need local insurance policies such as health insurance; and • Locally operated companies with local currency policies.
Biggest changeThis arrangement creates competition in that the U.S. dollar-denominated policies are cross-sold with high-need local insurance policies such as health insurance; and • Locally operated companies with local currency policies. We compete with companies formed and operated in the country in which our foreign insureds reside.
Unanticipated increases in early policyholder withdrawals or surrenders or elections by policyholders to receive lump sum payouts at maturity could negatively impact liquidity. A primary liquidity concern is the risk of unanticipated or extraordinary early policyholder withdrawals or surrenders. Our insurance policies include provisions, such as surrender charges, that help limit and discourage early withdrawals.
Unanticipated increases in early policyholder withdrawals or surrenders or elections by policyholders to receive lump sum payouts at maturity could negatively impact liquidity. A primary liquidity concern is the risk of unanticipated or extraordinary early policyholder withdrawals or surrenders. Some of our insurance policies include provisions, such as surrender charges, that help limit and discourage early withdrawals.
A SUBSTANTIAL PORTION OF OUR REVENUE IS GENERATED FROM INSURANCE PRODUCTS SOLD OUTSIDE OF THE UNITED STATES. WHILE OUR PRODUCTS ARE PRICED AND PAID FOR IN U.S. DOLLARS, OUR FOREIGN BUSINESS MAY SUBJECT US TO SEVERAL RISKS.
INTERNATIONAL BUSINESS RISKS A SUBSTANTIAL PORTION OF OUR REVENUE IS GENERATED FROM INSURANCE PRODUCTS SOLD OUTSIDE OF THE UNITED STATES. WHILE OUR PRODUCTS ARE PRICED AND PAID FOR IN U.S. DOLLARS, OUR FOREIGN BUSINESS MAY SUBJECT US TO SEVERAL RISKS.
THE DISTRIBUTION OF OUR PRODUCTS THROUGH INDEPENDENT CONSULTANTS REDUCES OUR CONTROL OVER SALES AND DISTRIBUTION AND THUS SUBJECTS US TO CERTAIN RISKS THAT COULD NEGATIVELY IMPACT OUR REVENUES, OUR IN-FORCE BUSINESS, AND OUR BENEFITS AND EXPENSE COSTS.
THE DISTRIBUTION OF OUR PRODUCTS THROUGH INDEPENDENT CONSULTANTS AND AGENCIES REDUCES OUR CONTROL OVER SALES AND DISTRIBUTION AND THUS SUBJECTS US TO CERTAIN RISKS THAT COULD NEGATIVELY IMPACT OUR REVENUES, OUR IN-FORCE BUSINESS, AND OUR BENEFITS AND EXPENSE COSTS.
Although the Company believes that these foreign regulators do not have jurisdiction over the Company and that any actions, including fines, may be unenforceable against the Company, any regulatory action could otherwise absorb Company time and resources away from its business operations or the Company may choose to pay such fines in order to do business in a particular country.
Although the Company believes that these foreign regulators do not have jurisdiction over the Company and that any actions, including fines, may be unenforceable against the Company, any regulatory action could otherwise absorb Company time and resources (including independent consultants) away from its business operations or the Company may choose to pay such fines in order to do business in a particular country.
In addition to the legal risks related to our international operations discussed above in this Item 1A, Risk Factors, we are subject to risks related to the laws and regulations in the jurisdictions where we are domiciled and registered to do business, including Bermuda, Puerto Rico and various U.S. states. These material risks are described below.
In addition to the legal risks related to our international operations discussed above in this Item 1A, Risk Factors, we are subject to risks related to the laws and regulations in the jurisdictions where we are domiciled and registered to do business, including Puerto Rico and various U.S. states. The material risks are described below.
While we only sell U.S. dollar denominated products, currency control laws or other currency exchange restrictions in foreign countries could materially adversely affect our revenues by limiting the ability of our policyholders in such countries to pay premiums in U.S. dollars or to receive U.S. dollar benefits.
International Currency Risks. While we only sell U.S. dollar denominated products, currency control laws or other currency exchange restrictions in foreign countries could materially adversely affect our revenues by limiting the ability of our policyholders in such countries to pay premiums in U.S. dollars or to receive U.S. dollar benefits.
There is a risk that foreign governments where we sell our products will become more aggressive in enforcing any perceived violations of their laws and seek to impose monetary fines, criminal penalties, and/or order us to cease our sales in that jurisdiction.
There is a risk that foreign governments where we sell our products will become more aggressive in enforcing any perceived violations of their laws and seek to impose monetary fines or criminal penalties on us or our independent consultants, and/or order us to cease our sales in that jurisdiction.
Our insurance subsidiaries are subject to minimum capital and surplus requirements, and any failure to meet these requirements could subject us to regulatory action or other restrictions. The capacity for an insurance company's growth in premiums is partially a function of its required statutory surplus.
Our insurance subsidiaries are subject to minimum capital and surplus requirements, and any failure to meet these requirements could subject us to regulatory action or other restrictions, including ceasing business. The capacity for an insurance company's growth in premiums is partially a function of its required statutory surplus.
Our sales to residents of foreign countries expose us to unknown risks related to foreign regulation, foreign currency and tax laws, and political instability. A significant loss of sales in these foreign markets would have a material adverse effect on our results of operations and financial condition. International Regulatory Risks.
Our sales to residents of foreign countries expose us to unknown risks related to foreign regulation, foreign currency restrictions, and political instability. A significant loss of sales in these foreign markets would have a material adverse effect on our results of operations and financial condition. International Regulatory Risks.
Legal Proceedings , we are subject to a risk of our independent consultants leaving our Company to sell products for a competitor and inducing our policyholders to lapse or surrender their policies, or otherwise terminate their relationship with us, in order to purchase products from the independent consultant with our competitor company.
Additionally, we are subject to a risk of our independent consultants leaving our Company to sell products for a competitor and inducing our policyholders to lapse or surrender their policies, or otherwise terminate their relationship with us, in order to purchase products from the independent consultant with a competitor company.
The Company’s ability to undertake these efforts successfully is subject to a number of risks and uncertainties, including, without limitation: • availability of sufficient reliable data; • incorrect or incomplete analysis of available data; • uncertainties inherent in estimates and assumptions; • selection and application of appropriate rating formulae or other pricing methodologies; • adoption of successful pricing strategies; • prediction of policyholder life expectancy and retention; • unforeseen events that may cause our estimates to be wrong (such as the COVID-19 pandemic); • unanticipated legislation, regulatory action or court decisions; or • unexpected changes in interest rates or inflation.
Pricing adequacy is subject to a number of risks and uncertainties, including, without limitation: • availability of sufficient reliable data; • incorrect or incomplete analysis of available data; • uncertainties inherent in estimates and assumptions; • selection and application of appropriate rating formulae or other pricing methodologies; • adoption of successful pricing strategies; • prediction of policyholder life expectancy and retention; • unforeseen events that may cause our estimates to be wrong (such as the COVID-19 pandemic); • unanticipated legislation, regulatory action or court decisions; or • unexpected changes in interest rates or inflation.
Reserves do not represent an exact calculation of exposure, but instead represent our best estimates using actuarial and statistical procedures. Reserve estimates are refined as experience develops, and adjustments to reserves are reflected in our statements of operations for the period in which such estimates are updated.
Reserves do not represent an exact calculation of exposure, but instead represent our best estimates using actuarial and statistical procedures. Reserve estimates are refined as experience develops, and adjustments to reserves are reflected in our consolidated statements of operations and comprehensive income (loss) for the period in which such estimates are updated.
If we fail to meet these standards and requirements, our various regulators may require specified actions to be taken, including without limitation: • restricting distributions from our subsidiaries to Citizens; or • requiring Citizens to contribute additional capital to a subsidiary; or • requiring Citizens to enter into a guaranty or other agreement to contribute capital to such subsidiary under certain circumstances; all of which could have a material and adverse impact on the Company’s competitiveness, operational flexibility, financial condition, and results of operations.
If we fail to meet these standards and requirements, our various regulators may require specified actions to be taken, including without limitation: • restricting distributions from our subsidiaries to Citizens; or • requiring Citizens to contribute additional capital to a subsidiary; or • requiring Citizens to enter into a guaranty or other agreement to contribute capital to such subsidiary under certain circumstances; or • requiring the applicable insurance company to stop selling new business; all of which could have a material and adverse impact on the Company’s competitiveness, operational flexibility, financial condition, and results of operations.
We compete with other insurers for marketing agencies, agents and independent consultants primarily on the basis of our compensation, products and support services. Any reduction in our ability to attract and retain effective sales representatives could materially adversely affect our revenues, results of operations and financial condition. Additionally, as we disclosed in Item 3.
We compete with other insurers for marketing agencies, agents and independent consultants primarily on the basis of our compensation, products and support services. Any reduction in our ability to attract and retain effective sales representatives could materially adversely affect our revenues, results of operations and financial condition.
Many factors can affect the Company’s ability to pay claims accurately, including the following: • the training, experience, and skill of the Company’s claims representatives; • the extent of fraudulent claims and the Company’s ability to recognize and respond to such claims; • the claims organization’s culture and the effectiveness of its management; and • the Company’s ability to develop or select and implement appropriate procedures, technologies, and systems to support claims functions.
Many factors can affect the Company’s ability to pay claims accurately, including the following: • the training, experience, and skill of the Company’s claims representatives; • the extent of fraudulent claims and the Company’s ability to recognize and respond to such claims; and • the Company’s ability to develop or select and implement appropriate procedures, technologies, and systems to support claims functions.
Maintaining appropriate levels of statutory surplus, as measured by statutory accounting practices prescribed or permitted by a company's jurisdiction of domicile, is considered important by insurance regulatory authorities. Failure to maintain required levels of statutory surplus could result in increased regulatory scrutiny and enforcement action by regulatory authorities.
Maintaining appropriate levels of statutory surplus, as measured by statutory accounting practices prescribed or permitted by a company's jurisdiction of domicile, is the most important solvency measure for insurance regulatory authorities. Failure to maintain required levels of statutory surplus could result in increased regulatory scrutiny and enforcement action by regulatory authorities.
If we experience unanticipated early withdrawal or surrender activity or greater than expected lump sum distributions of endowment maturities and we do not have sufficient cash flow from our insurance operations to support payment of these benefits, we may have to sell our investments in order to meet our cash needs or be forced to obtain third-party financing.
If we experience unanticipated early withdrawal or surrender activity or greater than expected lump sum distributions of endowment maturities and we do not have sufficient cash flow from our insurance operations to support payment of these benefits, we may have to sell our investments in order to meet our cash needs or be December 31, 2023 | 10-K 15 Table of Contents CITIZENS, INC. forced to obtain third-party financing.
Our insurance subsidiaries are subject to minimum capital and surplus requirements in the U.S., Bermuda, and Puerto Rico as described below.
Our insurance subsidiaries are subject to minimum capital and surplus requirements in the U.S. and Puerto Rico.
We compete with companies formed and operated in the country in which our foreign insureds reside. In addition, from time to time, companies enter and exit the markets in which we operate, thereby increasing competition at times when there are new entrants. We may lose business to competitors offering competitive products at lower prices, or for other reasons.
In addition, from time to time, companies enter and exit the markets in which we operate, thereby increasing competition at times when there are new entrants. We may lose business to competitors offering competitive products at lower prices, or for other reasons.
Some of our competitors may offer better compensation packages or commissions or induce agents to sell their products due to their broader product offerings, more distribution resources, better brand recognition, more competitive pricing, lower cost structures or greater financial strength or claims paying ratings than we have.
Significant competition exists among insurers in attracting and maintaining marketers of demonstrated ability. Some of our competitors may offer better compensation packages or commissions or induce agents to sell their products due to their broader product offerings, more distribution resources, better brand recognition, more competitive pricing, lower cost structures or greater financial strength or claims paying ratings than we have.
REGULATIONS VARY FROM JURISDICTION TO JURISDICTION AND MAY CHANGE FROM TIME TO TIME. THESE REGULATIONS AFFECT OUR OPERATIONS AND CHANGES COULD NEGATIVELY IMPACT OUR CASH FLOW, THE RESULTS OF OUR OPERATIONS, OUR LIQUIDITY AND OUR FINANCIAL CONDITION.
REGULATORY RISKS INSURANCE IS A HIGHLY REGULATED BUSINESS. REGULATIONS VARY FROM JURISDICTION TO JURISDICTION AND MAY CHANGE FROM TIME TO TIME. THESE REGULATIONS AFFECT OUR OPERATIONS AND CHANGES COULD NEGATIVELY IMPACT OUR CASH FLOW, THE RESULTS OF OUR OPERATIONS, OUR LIQUIDITY AND OUR FINANCIAL CONDITION.
Sales of our insurance products could decline if we are unable to establish and maintain relationships with independent marketing agencies, independent consultants and agents. We depend almost exclusively on the services of independent marketing agencies, independent consultants, and agents for the distribution of our products.
Sales of our insurance products could decline if we are unable to establish and maintain relationships with independent marketing agencies, independent consultants and agents.
Difficulties in transferring funds from or converting currencies to U.S. dollars in certain countries could cause an increase in fees and costs associated with such payments or receipt of benefits and therefore make our products less attractive to such policyholders.
Difficulties in transferring funds from or converting currencies to U.S. dollars in certain countries could cause an increase in fees and costs associated with such payments or receipt of benefits and therefore make our products less attractive to such policyholders. December 31, 2023 | 10-K 13 Table of Contents CITIZENS, INC. International Political Risks.
Financial Statements and Supplementary Data of this report. Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. December 31, 2023 | 10-K 12 Table of Contents CITIZENS, INC.
A substantial majority of our direct insurance premiums, approximately 69% at December 31, 2022, are from policyholders in foreign countries, primarily those in Latin America and the Pacific Rim. Prior to January 1, 2023, these policies were issued by our Bermuda subsidiary, CICA International, and as of January 1, 2023, are issued by our Puerto Rico subsidiary, CICA PR.
A substantial majority of our direct insurance premiums, approximately 70% at December 31, 2023, are from policyholders in foreign countries, primarily those in Latin America and the Pacific Rim. As described in Part I, Item 1, Business, these policies are issued by our Puerto Rico subsidiary, CICA International, which is licensed as an international insurer in Puerto Rico.
The following information should be read in conjunction with Part I. Item 3. Legal Proceedings , Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and December 31, 2022 | 10-K 12 Table of Contents CITIZENS, INC. Results of Operations and the consolidated financial statements and accompanying notes in Part II. Item 8.
The following information should be read in conjunction with Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes in Part II. Item 8. Financial Statements and Supplementary Data of this report.
Therefore, if we are forced to sell our investments on unfavorable terms or obtain financing with unfavorable terms, it could have an adverse effect on our liquidity, results of operations and financial condition. Our largest expense is payments of claims and surrenders to our policyholders.
Therefore, if we are forced to sell our investments on unfavorable terms or obtain financing with unfavorable terms, it could have an adverse effect on our liquidity, results of operations and financial condition. The Company’s success depends on its ability to accurately underwrite risks in order to charge adequate premiums to policyholders.
The Company has a significant amount of aging endowment products that have begun reaching their maturities and policyholder election behavior is not known. It is uncertain how policyholders will react in response to these maturities. If a large number of policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities.
The policyholder can choose to take a lump sum payout or leave the money on deposit at interest with the Company. The Company has a significant amount of aging endowment products that have begun reaching their maturities and policyholder election behavior is not known. It is uncertain how policyholders will react in response to these maturities.
In addition, we face potential liquidity risks if policyholders with mature policies elect to receive lump sum distributions at greater levels than anticipated. Our whole life and endowment products provide the policyholder with alternatives once the policy matures. The policyholder can choose to take a lump sum payout or leave the money on deposit at interest with the Company.
These changes in surrender activity may result in remeasurement gains or losses which could increase volatility in our results of operations. In addition, we face potential liquidity risks if policyholders with mature policies elect to receive lump sum distributions at greater levels than anticipated. Our whole life and endowment products provide the policyholder with alternatives once the policy matures.
If we do not, our business, results of operations and financial condition will be materially adversely affected. December 31, 2022 | 10-K 14 Table of Contents CITIZENS, INC. We face a greater risk of money laundering activity associated with sales derived from residents of certain foreign countries. Some of our top international markets are in countries identified by the U.S.
If we do not, our business, results of operations and financial condition will be materially adversely affected. We face a greater risk of money laundering activity associated with sales derived from residents of certain foreign countries. The insurance industry is highly vulnerable to money laundering.
We experience considerable competition, primarily from the following sources, many of which have substantially greater financial, marketing and other resources than we have: • Foreign companies with U.S. dollar-denominated policies.
If we are unable to compete effectively in these markets, our business, results of operations and profitability may be adversely affected. We experience considerable competition for sales of our policies, primarily from the following sources, many of which have substantially greater financial, marketing and other resources than we have: • Offshore companies with U.S. dollar-denominated policies.
Bank Secrecy Act regulations, the Bermuda Proceeds of Crime Act 1997 and the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 applicable to insurance companies, we have developed and implemented an anti-money laundering, anti-terrorist financing and sanctions program (“AML/ATF and Sanctions Program”) that includes policies, procedures, controls, independent testing, reporting and recordkeeping requirements for deterring, preventing and detecting potential money laundering, terrorist financing, fraud and other criminal activity in order to comply with U.S. and Bermuda laws.
Accordingly, as required by applicable U.S. laws and best business practices, we have developed and implemented an anti-money laundering, anti-terrorist financing and sanctions program that includes policies, procedures, controls, independent testing, reporting and recordkeeping requirements for deterring, preventing and detecting potential money laundering, terrorist financing, fraud and other criminal activity and have an officer of the Company responsible for managing this program.
Other than Puerto Rico and Bermuda, where CICA PR and CICA International are domiciled, respectively, we have never registered to do business in these countries or sought to have our products approved by a governmental authority.
Others have a "consumption abroad" model where their residents may purchase unregistered products only if they are outside of their country when the purchase is made. Other than Puerto Rico and formerly Bermuda, we have never registered to do business in these countries or sought to have our international products approved by a governmental authority.
The Company’s financial condition, liquidity and results of operations largely depend on the Company’s ability to underwrite and set premiums accurately for the risks it faces. Premium rate adequacy is necessary to generate sufficient premiums to cover our cost of sales, costs of operations (including payment of policy benefits) and to earn a profit.
Pricing adequacy is necessary to generate sufficient premiums to cover our cost of sales, costs of operations (including payment of policy benefits) and to earn a profit.
As a result, the Company could underprice risks, which would negatively affect the Company’s margins, or it could overprice risks, which could reduce the Company’s volume and competitiveness. The Company’s ability to accurately underwrite risks in insurance products depends in part on its ability to forecast such changes and trends.
As a result, the Company could underprice risks, which would negatively affect the Company’s margins, or it could overprice risks, which could reduce the Company’s volume and competitiveness. Pricing accuracy depends upon our ability to project future losses based on historical loss experience, including policyholder retention.
However, there can be no assurance that these enhanced controls will entirely mitigate money laundering risk associated with these jurisdictions. PRODUCT - RELATED RISKS BECAUSE MOST OF OUR REVENUE DERIVES FROM COLLECTION OF PREMIUMS ON OUR PRODUCTS, OUR OVERALL FINANCIAL PERFORMANCE DEPENDS PRIMARILY UPON THE PRICING OF OUR INSURANCE PRODUCTS AND THE ACCURACY OF OUR PRICING ASSUMPTIONS.
INSURANCE RISKS BECAUSE MOST OF OUR REVENUE DERIVES FROM COLLECTION OF PREMIUMS ON OUR PRODUCTS, OUR OVERALL FINANCIAL PERFORMANCE DEPENDS UPON THE ACCURACY OF OUR PRODUCT PRICING AND ABILITY TO MANAGE PRICING ADEQUACY.
Department of State as jurisdictions of high risk for money laundering. As required by the U.S.
Some of our top international markets, such as Colombia and Venezuela, are countries that have been identified by the U.S. Department of the Treasury as jurisdictions of high risk for money laundering.
Removed
Others have a "consumption abroad" model where their residents may purchase unregistered products only if they are outside of their country when the purchase is made.
Added
We face direct competition from companies that operate in the same manner as we do in our international markets; • Foreign companies with locally operated subsidiaries that are registered in those countries and offer both local jurisdiction-regulated products in local currency and offshore U.S. dollar-denominated policies.
Removed
December 31, 2022 | 10-K 13 Table of Contents CITIZENS, INC. International Currency and Tax Risks.
Added
Money laundering in the insurance industry typically involves the exploitation of various products and mechanisms to obscure the origins of illicit funds. One common method is through the purchase of insurance policies, such as life insurance, with the use of dirty money.
Removed
Bermuda participates in the Common Reporting Standard (CRS), which is an information standard for the automatic exchange of information regarding financial accounts on a global level, among tax authorities who participate in CRS. CICA International complies with CRS reporting requirements and therefore we send required account information to certain foreign tax regulators.
Added
Criminals may overpay premiums, surrender policies prematurely, or make fictitious claims to cycle the illicit funds back as legitimate payout. To combat global financial crime, governments and international authorities implement a range of anti-money laundering and countering of terrorist financing (AML/CFT) regulations that impact the insurance sector. Penalties for compliance failures can include heavy fines.
Removed
Taxes imposed upon our policyholders by these foreign countries may cause our products to be less attractive than other products which may be more tax-advantaged. A significant loss of sales or surrenders due to tax reporting could materially impact our business. International Political Risks.
Added
Despite our efforts to prevent money laundering through our companies, there can be no assurance that these enhanced controls will entirely mitigate money laundering risk associated with our insurance products, whether in these foreign countries or in the United States. December 31, 2023 | 10-K 14 Table of Contents CITIZENS, INC.
Removed
If we are unable to compete effectively in these markets, our business, results of operations and profitability may be adversely affected. CICA PR and CICA International offer U.S. dollar-denominated life insurance products to individuals residing in foreign countries and we depend on the ability of our independent consultants in foreign countries to effectively distribute our products.
Added
DIFFERENCES IN ACTUAL EXPERIENCE, IMPROPER EVALUATION OF UNDERWRITING RISK, MISMANAGEMENT OF CLAIMS, OR OTHER UNFORESEEN EVENTS COULD CAUSE OUR ACTUAL RESULTS TO DIFFER FROM OUR ASSUMPTIONS, WHICH WOULD REDUCE OUR MARGINS AND THUS NEGATIVELY AFFECT OUR PROFITABILITY AND FINANCIAL CONDITION. Pricing accuracy depends upon our ability to project future losses based on historical loss experience, adjusted for known trends.
Removed
We face direct competition from companies that operate in the same manner as we do in our international markets, including from a company formed by some of our former employees and independent consultants who we have sued for, among other things, unfair competition (see, Part I. Item 3.
Added
If a large number of policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities.
Removed
We have an enhanced AML/ATF and Sanctions Program with additional controls, such as watch-list screening beyond sanctions screening required by the U.S. Office of Foreign Assets Control ("OFAC") and the Financial Sanctions Implementation Unit of Bermuda, enhanced payment due diligence and transaction controls.
Added
The Company’s financial results largely depend on the Company’s ability to underwrite and set premiums accurately for the risks it faces.
Removed
CHANGES IN ACTUAL EXPERIENCE, IMPROPER EVALUATION OF UNDERWRITING RISK AND MISMANAGEMENT OF CLAIMS HANDLING COULD SIGNIFICANTLY INCREASE OUR BENEFIT AND EXPENSE COSTS AND THUS NEGATIVELY AFFECT OUR PROFITABILITY AND FINANCIAL CONDITION. The Company’s success depends on its ability to accurately underwrite risks and to charge adequate premiums to policyholders.
Added
Failure to adequately underwrite health risks (i.e., to charge lower premiums than should be charged based on an individual’s health or to accept risks of extremely unhealthy individuals) or other types of risks (e.g., political risks) could negatively impact profitability as we could pay higher benefits than our products are priced for.
Removed
The Company must also review and properly underwrite applications for life insurance in order to charge a sufficient premium to its policyholders.
Added
Historically, we have fully underwritten most of our products in order to properly evaluate risk. For many of our newer products, primarily in the U.S., we utilize a “simplified” underwriting process. Simplified issue life insurance uses a simple form of underwriting. Applicants must answer some health-related questions but do not have to take a life insurance medical exam.
Removed
If it is not successful in doing so, the Company’s operating results, financial condition, and cash flow could be materially adversely affected. December 31, 2022 | 10-K 15 Table of Contents CITIZENS, INC. Pricing accuracy depends upon our ability to project future losses based on historical loss experience, including policyholder retention.
Added
The underwriting decision is based on questions answered on the application and may be supplemented with additional medical claims history and lab data information.
Removed
We also track and manage liabilities and align our investment portfolio in an effort to maintain sufficient liquidity to support anticipated withdrawal demands.
Added
Any shortcomings in the process used to evaluate and price our policies, or significant inaccuracies in the life expectancy estimates relating to those policies, could have a material and adverse effect on our results of operations and financial condition. Policyholder claims is one of our largest expenses.
Removed
The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), cybersecurity incidents and events, terrorist attacks, war, trade policies, military conflict, extreme climate-related incidents or events or other natural disasters, could create economic and financial disruptions, and could lead to operational December 31, 2022 | 10-K 16 Table of Contents CITIZENS, INC. difficulties that could impair our ability to manage our business.
Added
Our life and health insurance products are particularly exposed to risks of catastrophic mortality, such as a pandemic or other events that result in a large number of deaths. In addition, the occurrence of such an event in a concentrated geographic area could have a severe disruptive effect on our workforce and business operations.
Removed
Below are two examples of how unforeseen events and the risks they pose could impact our business. COVID-19 pandemic. The COVID-19 pandemic has negatively impacted certain aspects of our business and, depending on severity and duration, could have a material adverse effect on our financial condition, results of operations and overall business operations in the future.
Added
The likelihood and severity of such events cannot be predicted and are difficult to estimate.
Removed
Due to the uncertain nature of the COVID-19 pandemic and its variants and impacts, we cannot fully estimate the duration or full impact of the COVID -19 pandemic on our business.
Added
In such an event, the impact to our operations could have a material adverse impact on our ability to conduct business and on our results of operations and financial condition, particularly if those problems affect employees performing operational tasks and supporting computer-based data processing, or destroy the capability to transmit, store, and retrieve valuable data.
Removed
Some of the most significant risks related to the ongoing COVID-19 pandemic include higher level of claims, decreased premium revenue due to disruption to our workforce and distribution channels, travel and business restrictions.
Added
In addition, in the event that a significant number of our management were unavailable following a disaster, the achievement of our strategic objectives could be negatively impacted. December 31, 2023 | 10-K 16 Table of Contents CITIZENS, INC.
Removed
Some potential future risks include (i) the adequacy of our pricing assumptions due to long-term effects of COVID-19, (ii) our ability to adequately underwrite risks related to COVID-19 survivors, and (iii) our ability to ensure the safety of our employees and potential lawsuits related to safety and/or workplace policies.
Added
We depend almost exclusively on the services of a small number of independent consulting agencies in our international markets and on independent marketing organizations, general agencies and independent agents in our domestic markets for the distribution of our products. The loss of any of these producers could negatively affect our sales and policy retention.
Removed
Additionally, the COVID-19 pandemic has led to reliance on digital distribution and development of digital sales and service platforms in order to offset social distancing measures and thus our ability to develop and maintain these platforms and protect them from cyber risk is critical to our ongoing success. Climate Change.
Added
Because we sell our products through independent agents, we have less control over the manner in which they sell our products. As described above in Item 1, Business, Regulation, insurance regulators focus on market conduct, i.e., the way we sell our products.
Removed
The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event.
Added
In the United States, there are several insurance regulations and federal laws that limit how we December 31, 2023 | 10-K 17 Table of Contents CITIZENS, INC. sell our products, such as the Telephone Consumer Protection Act ("TCPA"), which governs how our agents can contact customers or potential customers via telephone and text.
Removed
Most catastrophes are restricted to small geographic areas; however, hurricanes, earthquakes, tsunamis and man-made catastrophes may produce significant damage or loss of life in larger areas, especially those that are heavily populated. SPFIC sells property insurance policies in Louisiana and Arkansas.
Added
While we expect our agents to comply with their contractual obligations to us and laws such as the TCPA, we have limited control over how they conduct their business. If violations, such as TCPA violations, were attributed to us, we could incur significant fines and if attributed to our agents, may cause them to stop selling our products.
Removed
Climate change, including rising temperatures and changes in weather patterns, could impact storm frequency and severity in our coverage areas, which could materially impact our financial performance. Furthermore, since we obtain catastrophic storm reinsurance, storm frequency could cause us to have to obtain additional reinsurance, which negatively impacts our premium revenue.
Added
In August 2023, in order to comply with the requirements of the Bermuda regulators to transfer our international business to CICA International in Puerto Rico, Citizens and CICA International entered into a Keep Well Agreement, as described in
Removed
Since we operate in a highly regulated and competitive environment, we may not be able to raise our rates sufficiently to recoup our losses. Additionally, the volume and severity of storms increases the risks of writing property insurance in coastal areas, which could cause us to change our business model, negatively impacting our revenue and earnings.
Removed
December 31, 2022 | 10-K 17 Table of Contents CITIZENS, INC. We may be required to accelerate the amortization of deferred acquisition costs, which would increase our expenses and adversely affect our results of operations and financial condition. At December 31, 2022, we had $140.2 million of deferred policy acquisition costs, or DAC.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. PROPERTIES We lease our principal office at the Domain in Austin, Texas to service all business entities and operations. We lease space for our office in Bermuda related to CICA International and CICA PR and in Louisiana, Arkansas and Mississippi related to our Home Service Insurance operations.
Biggest changeItem 2. PROPERTIES We lease our principal office at the Domain in Austin, Texas to service all business entities and operations. We lease space in Puerto Rico for CICA International and in Louisiana, Arkansas and Mississippi related to our Home Service Insurance operations. We also own properties in Louisiana related to our Home Service Insurance operations. Item 3.
Removed
We also own properties in Louisiana related to our Home Service Insurance operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Removed
Item 3. LEGAL PROCEEDINGS The following are material pending legal proceedings in which we or any of our subsidiaries is a party or in which any of our or their property is the subject.
Added
Item 3. Legal Proceedings 25 Item 4. Mine Safety Disclosures 25 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. [Reserved] 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 55 Item 8.
Removed
Trade Secret Lawsuit On November 7, 2018, Citizens, CICA International and CICA (defined as "we", "us", "our" or "Plaintiffs" in this Item 3) filed a lawsuit in the District Court of Travis County, Texas (the “District Court”) against (i) Randall Riley (“Riley”), a former Citizens executive and son of Citizens’ founder Harold E.
Removed
Riley, (ii) CALI, copycat companies formed by Riley and (iii) Alexis Enrique Delgado, Carlos Nalsen Landa, Enrique Pinzon Ruiz, Johan Emilio Mikuski Silva and Esperanza Peralta de Delgado, former independent consultants of Citizens (collectively, the “Los Raudales Defendants,” and together with Riley and CALI, collectively the “Original Defendants”).
Removed
On September 10, 2019, we filed an amended complaint and added additional defendants to the lawsuit (with the Original Defendants, collectively, "Defendants"), including (i) Michael P. Buchweitz (a former underwriter for Citizens), Jonathan M. Pollio (a former actuary for Citizens), Jeffrey J. Wood (a former Chief Financial Officer and the current Chief Financial Officer of First Trinity) and Steven A.
Removed
Rekedal (former marketing officer), (ii) First Trinity Financial Corporation, and Trinity American, Inc. (collectively, “First Trinity”) and International Marketing Group S.A., LLC, entities that have founded a business on the exploitation of Citizens’ trade secrets and goodwill, and (iii) Gregg E. Zahn, the CEO of First Trinity.
Removed
Our lawsuit claims that: • Riley and First Trinity tortiously interfered with Citizens’ contracts with its agents and former employees and that they “willfully and intentionally” induced the Los Raudales Defendants and other agents and former employees to breach those contracts by disclosing Citizens’ confidential information; • The Los Raudales Defendants were properly terminated for cause under their independent consultant contracts and thus not entitled to additional commissions under such contracts; • Defendants stole Citizens’ information in order to unfairly compete with us; • Defendants wrongfully secured benefits from Citizens and thus Citizens is entitled to those benefits (unjust enrichment); and • Defendants conspired to achieve the theft of Citizens’ trade secrets, including by using a confusingly similar name and logo.
Removed
In addition to the trial in the lawsuit being delayed several times due to the COVID-19 pandemic, key developments in the lawsuit have been as follows: • January 2019 - the Original Defendants filed a motion to dismiss certain claims alleged in the suit, which the District Court denied in its entirety. • May 2019 - we filed a motion for a preliminary injunction to bar the Original Defendants from continuing to engage in unfair competition and misappropriation of our trade secrets and tortious interference with our existing contracts with our independent consultants.
Removed
The District Court denied the application for a temporary injunction and in August 2020, the Third Court of Appeals in Austin, Texas affirmed the District Court’s decision. • June 2021 - Defendants filed a traditional and no evidence Motion for Partial Summary Judgment (the “Motion”), which was denied in its entirety by the District Court.
Removed
Defendants’ Motion claimed that we should not be able to proceed with our claims against them for unfair competition, tortious interference with contract, conspiracy and unjust enrichment, because we “have no evidence to support these theories.” By denying Defendants’ Motion in its entirety, we can proceed to trial with all of the claims described above.
Removed
December 31, 2022 | 10-K 25 Table of Contents CITIZENS, INC. • September 2021 - the District Court denied the requests of Alexis Enrique Delgado, Enrique Pinzon Ruiz, and Esperanza Peralta de Delgado to be dismissed from the lawsuit and denied Michael Buchweitz’s and Jonathan Pollio’s requests that the claim against each of them for breach of his confidentiality agreement be dismissed.
Removed
While the District Court allowed the CEO (Zahn) and CFO (Wood) of First Trinity to be dismissed individually from the lawsuit, the ruling does not affect Citizens’ claims against First Trinity described above. • October 2022 - ◦ The District Court denied Jonathan Pollio's request for a continuance of the trial and we subsequently entered into a settlement agreement with him. ◦ After the denial of the continuance and six days prior to the start of the trial, Defendant Randall Riley died in a single vehicle automobile accident and all parties agreed to delay the trial.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs [2] October 2022 — $ — — November 2022 56,354 3.3800 56,354 December 2022 127,831 2.5475 127,831 Total 184,185 184,185 $ 5,300,000 [1] The stock repurchase program was publicly announced on May 10, 2022. [2] The Company was authorized to repurchase up to $8.0 million of its outstanding shares of Class A common stock. [3] The stock repurchase program does not have an expiration date. [4] No stock repurchase program has expired during the three months ended December 31, 2022. [5] There is no stock repurchase program that the Company has determined to terminate prior to expiration, or under which the Company does not intend to make further purchases.
Biggest changePeriod Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs [2] October 2023 66,805 $ 2.99 66,805 November 2023 — — — December 2023 — — — Total 66,805 66,805 $ 4,380,000 [1] The stock repurchase program was publicly announced on May 10, 2022. [2] The Company was authorized to repurchase up to $8.0 million of its outstanding shares of Class A common stock. [3] The stock repurchase program does not have an expiration date. [4] No stock repurchase program has expired during the three months ended December 31, 2023. [5] There is no stock repurchase program that the Company has determined to terminate prior to expiration, or under which the Company does not intend to make further purchases.
This program has no set termination date and may be suspended or discontinued by the Company’s Board of Directors at any time. The Company purchased the following shares of its Class A common stock during the three months ended December 31, 2022.
This program has no set termination date and may be suspended or discontinued by the Company’s Board of Directors at any time. The Company purchased the following shares of its Class A common stock during the three months ended December 31, 2023.
See Item 15, Note 11 Stock Compensation for equity compensation plan information. Recent Sales of Unregistered Securities; Use of Proceeds. None. Item 5(c) Issuer Purchases of Equity Securities. In May 2022, the Board of Directors authorized an equity repurchase plan for up to $8.0 million.
See Item 15, Note 13 Stock Compensation for equity compensation plan information. Recent Sales of Unregistered Securities; Use of Proceeds. None. Item 5(c) Issuer Purchases of Equity Securities. In May 2022, the Board of Directors authorized an equity repurchase plan for up to $8.0 million.
We hold 100% of our Class B common stock in treasury and thus here are no Class B shares outstanding. Holders. The number of stockholders of record as of March 7, 2023 was as follows: • Class A Common Stock - 84,886 • Class B Common Stock - — Dividend Policy.
We hold 100% of our Class B common stock in treasury and thus there are no Class B shares outstanding. Holders. The number of stockholders of record as of March 6, 2024 was as follows: • Class A Common Stock - 84,212 • Class B Common Stock - — Dividend Policy.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeAfter telling you about our industry, we discuss our 2022 financial highlights, the impacts of certain events on our business during 2022, and then we break-down our results of operations in detail so an investor understands the various line items of our profit and loss statements from management’s perspective.
Biggest changeAfter telling you about our industry, we discuss in detail our results of operations for the year ended December 31, 2023 so an investor or potential investor understands the various line items of our profit and loss statements from management’s perspective. Since our investments are one of two principal sources of our revenues, we describe them in detail.
This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. OVERVIEW For over 45 years, we have been fulfilling the needs of our policyholders and their families by providing insurance products that offer both living and death benefits.
This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. OVERVIEW For 55 years, we have been fulfilling the needs of our policyholders and their families by providing insurance products that offer both living and death benefits.
Item 6. [ RESERVED] December 31, 2022 | 10-K 27 Table of Contents CITIZENS, INC. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Item 6. [ RESERVED] December 31, 2023 | 10-K 26 Table of Contents CITIZENS, INC. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
We start by discussing the factors that we believe drive our operating results and then we discuss how industry developments and economic circumstances in general (e.g., low interest rates, the COVID-19 pandemic) affected or could affect our financial performance.
We start by discussing the factors that we believe drive our operating results and then we discuss how industry developments and economic circumstances in general (e.g., interest rate environment) affected or could affect our financial performance.
Citizens conducts insurance related operations through its insurance subsidiaries, which provide benefits to residents in 32 U.S. states and more than 70 different countries. We specialize in offering primarily ordinary whole life insurance, endowment products and final expense insurance in niche markets where we believe we can optimize our competitive position.
Citizens conducts insurance related operations through its insurance subsidiaries, which provide benefits to policyholders throughout the United States and in over 75 different countries. We specialize in offering primarily ordinary whole life insurance, endowment products and final expense insurance in niche markets where we believe we can optimize our competitive position.
Throughout the MD&A, we describe how we view the Company and which matters we believe are reasonably likely to affect future operations. We describe our priorities for the business in
Finally, we discuss our capital resources and liquidity so investors better understand how those resources are utilized and how we are able to meet our cash needs. Throughout the MD&A, we describe how we view the Company and which matters we believe are reasonably likely to affect future operations. We describe our priorities for the business in
Removed
Since our investments are one of two principal sources of revenues, we describe them in detail. Finally, we discuss our capital resources and liquidity so investors better understand how those resources are utilized and how we are able to meet our cash needs.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAs interest rates decrease, issuers are more likely to pre-pay, which could cause us to have to re-invest the pre-paid cash at lower interest rates, reducing our yields and net investment income. • The decision of whether to record a credit loss impairment is determined by our assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability as well as our ability and intent to hold the securities to recovery or maturity.
Biggest changeAs interest rates decrease, issuers are more likely to pre-pay, which could cause us to have to re-invest the pre-paid cash at lower interest rates, reducing our yields and net investment income.
As discussed above, the ability of our insurance company subsidiaries to make payments to us is subject to regulation by the states and jurisdictions in which they are domiciled, and in addition to maintaining minimum capital and surplus ratios, these payments depend primarily on regulatory approval of dividend payments and approved service agreements between us and these subsidiaries.
As discussed above, the ability of our insurance subsidiaries to make payments to us is subject to regulation by the states and jurisdictions in which they are domiciled, and in addition to maintaining minimum capital and surplus ratios, these payments depend primarily on regulatory approval of dividend payments and approved service agreements between us and these subsidiaries.
Raising capital in unfavorable market conditions could increase our interest expense or negatively impact our shareholders through dilution of their common stock ownership of the Company. Citizens and our insurance subsidiaries are subject to extensive governmental regulation in Puerto Rico, Bermuda and in the U.S.
Raising capital in unfavorable market conditions could increase our interest expense or negatively impact our shareholders through dilution of their common stock ownership of the Company. Citizens and our insurance subsidiaries are subject to extensive governmental regulation in Puerto Rico and in the U.S.
CICA PR is registered in Puerto Rico and is subject to regulation by the Puerto Rico Office of the Insurance Commissioner ("OIC"). As a Puerto Rico International Insurer, CICA PR is governed by Chapter 61 of the Puerto Rico Insurance Code.
CICA International is registered in Puerto Rico and is subject to regulation by the Puerto Rico Office of the Insurance Commissioner ("OIC"). As a Puerto Rico International Insurer, CICA International is governed by Chapter 61 of the Puerto Rico Insurance Code.
As a result, our shareholders may be prevented from receiving the benefit from any premium to the market price of our Class A common stock that may be offered by a bidder in a takeover context or such regulatory approval requirement may delay, deter, render more difficult or prevent a takeover attempt or a change in control.
As a result, our shareholders may be prevented from receiving the benefit from any premium to the market price of our Class A common stock that may be offered by a bidder in a takeover context or such regulatory approval requirement may delay, deter, render more difficult or prevent a takeover attempt or a change in control. Item 1B.
The BMA, OIC, and most U.S. insurance regulatory authorities have broad discretion to grant, renew, suspend and revoke licenses and approvals, and could preclude or temporarily suspend us from carrying on some or all of our activities, including acquisitions of other insurance companies, require us to add capital to our insurance company subsidiaries, or fine us.
The OIC and most U.S. insurance regulatory authorities have broad discretion to grant, renew, suspend and revoke licenses and approvals, and could preclude or temporarily suspend us from carrying on some or all of our activities, including acquisitions of other insurance companies, require us to add capital to our insurance subsidiaries, or fine us.
Any event reducing the value of our securities on an other than temporary basis may have a material adverse effect on our business, results of operations, or financial condition. THE COMPANY RELIES ON OUR INFORMATION TECHNOLOGY SYSTEMS, AND THE DATA MAINTAINED WITHIN THOSE SYSTEMS, TO MANAGE MANY ASPECTS OF OUR BUSINESS.
Any event reducing the value of our securities on an other than temporary basis may have a material adverse effect on our business, results of operations, or financial condition. CYBERSECURITY AND TECHNOLOGY RISKS THE COMPANY RELIES ON OUR INFORMATION TECHNOLOGY SYSTEMS, AND THE DATA MAINTAINED WITHIN THOSE SYSTEMS, TO MANAGE MANY ASPECTS OF OUR BUSINESS.
If a foreign securities regulatory authority were to determine the offer and sale of our Class A common stock under the CISIP was not allowed under applicable laws and regulations of its jurisdiction, such authority may issue or assert a fine, penalty or cease and desist order against our offer and sale of Class A common stock in that foreign jurisdiction.
If a foreign securities regulatory authority were to determine the offer and sale of our Class A common stock under the SIP was not allowed under applicable laws and regulations of its jurisdiction, such authority may issue or assert a fine, penalty or cease and desist order against our offer and sale of Class A common stock in that foreign jurisdiction.
There is a risk our Class A common stock price could be negatively impacted by a decrease in participation in the CISIP. Applicable insurance laws in the jurisdictions where our insurance subsidiaries are domiciled may discourage takeovers and business combinations that our shareholders might consider to be in their best interests.
There is a risk our Class A common stock price could be negatively impacted by a decrease in participation in the SIP. Applicable insurance laws in the jurisdictions where our insurance subsidiaries are domiciled may discourage takeovers and business combinations that our shareholders might consider to be in their best interests.
Out of an abundance of caution, i n May 2021, we entered into a Credit Facility with Regions Bank. See Part IV, Item 15, Note 7, Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of the Credit Facility.
Out of an abundance of caution, i n May 2021, we entered into a Credit Facility with Regions Bank. See Part IV, Item 15, Note 8, Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of the Credit Facility.
Our Class A common stock is not registered in any foreign country. As mentioned above, a significant portion of our Class A common stock has been purchased under the CISIP by foreign holders of life insurance policies.
Our Class A common stock is not registered in any foreign country. As mentioned above, a significant portion of our Class A common stock has been purchased under the SIP by foreign holders of life insurance policies.
This leads to material unrealized losses and negatively affects our stockholder equity. ◦ Policies may become less attractive to our policyholders in a rising interest rate environment.
This leads to material unrealized losses and negatively affects our stockholders' equity. ◦ Policies may become less attractive to our policyholders in a rising interest rate environment.
In that case, we may be required to amortize any remaining DAC, record additional liabilities and/or increase our capital contributions to our insurance subsidiaries in the period this occurs. • Rising interest rates may negatively affect us for some of the following reasons: ◦ Rising interest rates typically reduce the market values of fixed income assets, as the interest payments on such assets become less competitive relative to newer high rate fixed income instruments.
In that case, we may be required to record additional liabilities and/or increase our capital contributions to our insurance subsidiaries in the period this occurs. • Rising interest rates may negatively affect us as follows: ◦ Rising interest rates typically reduce the market values of fixed income assets, as the interest payments on such assets become less competitive relative to newer high rate fixed income instruments.
We evaluate our investment portfolio for impairments. There can be no assurance that we have accurately assessed the level of impairments taken. Historical trends may not be indicative of future impairments and additional impairments may need to be taken in the future.
There can be no assurance that we have accurately assessed the level of impairments taken. Historical trends may not be indicative of future impairments and additional impairments may need to be taken in the future.
Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, or other cyber attacks, computer viruses, malicious codes, and similar means of unauthorized and destructive tampering.
Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of third parties with December 31, 2023 | 10-K 22 Table of Contents CITIZENS, INC. whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, or other cyber attacks, computer viruses, malicious codes, and similar means of unauthorized and destructive tampering.
Because we allow our policyholders to use their policy dividends to purchase our Class A common stock through our CISIP, we have almost 86,000 shareholders and approximately 40% of our shareholders hold less than 100 shares each.
Because we allow our policyholders to use their policy dividends to purchase our Class A common stock through our SIP, we have over 84,000 shareholders and approximately 40% of our shareholders hold less than 100 shares each.
To that end, all the U.S. states in which we do business have insurance regulatory agencies with broad legal powers with respect to licensing companies to transact business, mandating capital and surplus requirements, regulating claims practices, approving service agreements between a holding company and its operating subsidiary, restricting companies' ability to enter and exit markets, and restricting or prohibiting the payment of dividends by our subsidiaries to us.
To that end, all the U.S. states in which we do business have insurance regulatory agencies with broad legal powers with respect to licensing companies to transact business, mandating capital and surplus requirements, regulating claims practices, approving service agreements between a holding company and its operating subsidiary, restricting companies' ability to enter and exit markets, approving December 31, 2023 | 10-K 19 Table of Contents CITIZENS, INC. product forms and to a lesser extent, rates, and restricting or prohibiting the payment of dividends by our subsidiaries to us.
If we do not maintain adequate systems, we could experience adverse consequences, including inadequate information on which to base December 31, 2022 | 10-K 22 Table of Contents CITIZENS, INC. pricing, underwriting and reserve decisions, regulatory problems, failure to meet prompt payment obligations, increases in administrative expenses and loss of customers.
If we do not maintain adequate systems, we could experience adverse consequences, including inadequate information on which to base pricing, underwriting and reserve decisions, regulatory problems, failure to meet prompt payment obligations, increases in administrative expenses and loss of customers.
Although we have insurance against some cyber risks and attacks, we may be subject to litigation and financial losses that exceed our policy limits, are subject to deductibles or are not covered under any of our current insurance policies. December 31, 2022 | 10-K 23 Table of Contents CITIZENS, INC.
Although we have insurance against some cyber risks and attacks, we may be subject to litigation and financial losses that exceed our policy limits, are subject to deductibles or are not covered under any of our current insurance policies.
December 31, 2022 | 10-K 19 Table of Contents CITIZENS, INC. Except to the extent that we are a creditor with recognized claims against our subsidiaries, claims of our subsidiaries' creditors, including policyholders, have priority with respect to the assets and earnings of the subsidiaries over the claims of other creditors (including us) and shareholders.
Except to the extent that we are a creditor with recognized claims against our subsidiaries, claims of our subsidiaries' creditors, including policyholders, have priority with respect to the assets and earnings of the subsidiaries over the claims of other creditors (including us) and shareholders.
December 31, 2022 | 10-K 20 Table of Contents CITIZENS, INC. FINANCIAL REGULATION AND RISKS Changes in accounting standards may adversely affect our reported results of operations and financial condition. Our consolidated financial statements are subject to the application of GAAP in the U.S. and Bermuda, which is periodically revised and/or expanded.
FINANCIAL RISKS Changes in accounting standards may adversely affect our reported results of operations and financial condition. Our consolidated financial statements are subject to the application of GAAP in the U.S., which is periodically revised and/or expanded.
The Class A common stock sold under the CISIP is registered with the SEC pursuant to a Form S-3 registration statement under the Securities Act of 1933 but is not registered under the laws of any foreign jurisdiction.
The Class A common stock sold under the SIP is registered with the SEC December 31, 2023 | 10-K 23 Table of Contents CITIZENS, INC. pursuant to a Form S-3 registration statement under the Securities Act of 1933 but is not registered under the laws of any foreign jurisdiction.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources . If CICA International's minimum capital level fell below the minimum required by the BMA, Citizens may have to contribute capital to CICA International, which could negatively impact our capital resources and liquidity.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources . If CICA International's minimum capital level falls below certain thresholds as set forth in the agreement, Citizens may have to contribute capital to CICA Bermuda, which could negatively impact our capital resources and liquidity.
As a holding company, our assets consist of the capital stock of our subsidiaries, cash and investments. Accordingly, we rely primarily on statutorily permissible payments from our insurance company subsidiaries, principally through dividends or service agreements we have with our subsidiaries, to meet our working capital needs.
Accordingly, we rely primarily on statutorily permissible payments from our insurance subsidiaries, principally through dividends or service agreements we have with our subsidiaries, to meet our working capital needs.
Citizens is a holding company that has minimal operations of its own and depends on the ability of our insurance subsidiaries to pay dividends or make service payments to us in sufficient amounts to fund our operations. If they cannot make such payments, Citizens may need to sell its investments or seek external capital to cover its operational costs.
Citizens may have to contribute capital to CICA Domestic to maintain the required RBC ratio. Citizens is a holding company that has minimal operations of its own and depends on the ability of our insurance subsidiaries to pay dividends or make service payments to us in sufficient amounts to fund our operations.
Additionally, CICA PR must comply with other laws and regulations of Puerto Rico, most of which apply to our domestic subsidiaries as well, including the U.S. Bank Secrecy Act and other anti-money laundering laws and regulations of the United States.
Additionally, CICA International must comply with other laws and regulations of Puerto Rico, most of which apply to our domestic subsidiaries as well, including U.S. federal laws such as the Bank Secrecy Act. In the U.S., we are primarily subject to regulation at the state-level.
This could negatively affect our stockholder equity. December 31, 2022 | 10-K 21 Table of Contents CITIZENS, INC. • Low or declining interest rates could negatively affect us for some of the following reasons: ◦ Our fixed maturity investment portfolio is primarily invested in callable securities.
This could negatively affect our stockholders' equity. • Low or declining interest rates could negatively affect us for many reasons, including: ◦ Our fixed maturity investment portfolio is primarily invested in callable securities.
Accordingly, we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board ("FASB"), the BMA and the National Association of Insurance Commissioners ("NAIC").
Accordingly, we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board ("FASB") and the National Association of Insurance Commissioners ("NAIC"). Updates or revisions, including underlying assumptions, projections, estimates or judgments/interpretations by management, could have a material adverse effect on our business, financial condition and results of operations.
In the U.S., we are subject to federal laws, as well as state-level regulation, including a requirement to obtain approval of forms and rates in the states we sell our insurance policies. Insurance company regulation is generally designed to protect the interests of policyholders, with substantially lesser protections to shareholders of the regulated insurance companies.
Insurance company regulation is generally designed to protect the interests of policyholders, with substantially less protections to shareholders of the regulated insurance companies or their holding companies.
Removed
CICA International is registered in Bermuda and is subject to regulation by the Bermuda Monetary Authority ("BMA") and the provisions of the Bermuda Insurance Act and the rules and regulations promulgated thereunder, as well as other laws which apply to Bermuda-based companies, such as compliance with Common Reporting Standards, which are administered by the Bermuda Ministry of Finance ("MOF").
Added
In our CICA Domestic business, we pay advance commissions on some of our insurance products, meaning we pay an agent their commission immediately upon sale of a policy, rather than "as earned", or when premiums are received by us.
Removed
Citizens and our domestic insurance subsidiaries are subject to extensive regulation and supervision in U.S. jurisdictions where we are domiciled and where we do business. These rules and regulations require us to comply with privacy, anti-money laundering, bank secrecy, anti-corruption and foreign asset control laws among others.
Added
Because of this, another liquidity concern is the risk that rapid growth in first year sales of these products could create a significant increase in commission payments, which increases expenses and thus reduces our statutory capital until the commissions are recouped from premiums paid.
Removed
Future accounting standards we adopt, including the FASB’s Accounting Standard Update related to long-duration insurance contracts (known as LDTI), will change current accounting and disclosure requirements applicable to our consolidated financial statements. These changes including underlying assumptions, projections, estimates or judgments/interpretations by management, could have a material adverse effect on our business, financial condition and results of operations.
Added
CICA Domestic sales have increased significantly since the third quarter of 2023 and continue to grow rapidly.
Added
To mitigate this risk and strain on capital, we may seek options, such as reinsurance or loans at the holding company level (from the Credit Facility or otherwise) that would allow us to reduce the liquidity risk should CICA Domestic's required commission payments exceed current resources.
Added
If we are unable to purchase reinsurance protection in amounts that we consider sufficient or unable to borrow money to contribute capital to CICA Domestic, we could be exposed to cash flow strain.
Added
For CICA Domestic, commission advances are non-admitted assets, which increases required regulatory December 31, 2023 | 10-K 18 Table of Contents CITIZENS, INC. capital and reduces the excess capital available. As discussed above, management is investigating various options in order to reduce both regulatory capital and liquidity risk should the capital required to support this growth exceed current resources.
Added
If they cannot make such payments, Citizens may need to sell investments or seek external capital to cover its operational costs. As a holding company, our assets consist of the capital stock of our subsidiaries, cash and investments.
Added
Non-compliance with laws or regulations related to customer and consumer privacy and information security, including a failure to ensure that our business associates with access to sensitive customer and consumer information maintain its confidentiality, could materially adversely affect our reputation and business operations.
Added
The collection, maintenance, use, disclosure and disposal of personally identifiable information by our insurance subsidiaries are highly regulated. Applicable laws and rules are subject to change by legislation or administrative or judicial interpretation.
Added
Various state laws address the use and disclosure of personally identifiable information to the extent they are more restrictive than those contained in the privacy and security provisions in the federal Gramm-Leach-Bliley Act.
Added
Noncompliance with any privacy laws, whether by us or by one of our business associates, could have a material adverse effect on our business, reputation and results of operations and could result in material fines and penalties, various forms of damages, consent orders regarding our privacy and security practices, adverse actions against our licenses to do business, and injunctive relief.
Added
A ratings downgrade or other negative action by a rating agency could materially affect our business, financial condition, and results of operations. A.M.Best reviews CICA Domestic and publishes its financial strength rating as an indicator of our ability to fulfill our contractual obligations. This rating is important to maintaining public confidence in our insurance products.
Added
A downgrade or other negative action by A.M.
Added
Best with respect to the financial strength rating of CICA Domestic December 31, 2023 | 10-K 20 Table of Contents CITIZENS, INC. could negatively affect us by limiting or restricting the ability of CICA Domestic to attract independent insurance agencies to distribute our products or reduce the attractiveness of our products to consumers.
Added
December 31, 2023 | 10-K 21 Table of Contents CITIZENS, INC. • The decision of whether to record a credit loss impairment is determined by our assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability as well as our ability and intent to hold the securities to recovery or maturity.

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