Company Quick10K Filing
Citizens
Price1.00 EPS7,753,000
Shares-0 P/E0
MCap-0 P/FCF-0
Net Debt-47 EBIT-1
TEV-47 TEV/EBIT39
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-04
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-03-11
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-26
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-07
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-03-29
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-09
10-K 2016-12-31 Filed 2017-04-27
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-03
10-K 2015-12-31 Filed 2016-03-24
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-06
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-04-06
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-06
10-K 2013-12-31 Filed 2014-03-11
10-Q 2013-09-30 Filed 2013-11-06
10-Q 2013-06-30 Filed 2013-08-06
10-Q 2013-03-31 Filed 2013-05-02
10-K 2012-12-31 Filed 2013-03-12
10-Q 2012-09-30 Filed 2012-11-06
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-07
10-K 2011-12-31 Filed 2012-03-12
10-Q 2011-09-30 Filed 2011-11-03
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-11
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-12
8-K 2020-11-04
8-K 2020-09-28
8-K 2020-08-24
8-K 2020-08-13
8-K 2020-08-05
8-K 2020-08-05
8-K 2020-07-29
8-K 2020-06-02
8-K 2020-05-07
8-K 2020-04-13
8-K 2020-03-11
8-K 2020-02-11
8-K 2020-01-24
8-K 2019-11-08
8-K 2019-09-20
8-K 2019-07-12
8-K 2019-06-04
8-K 2019-03-27
8-K 2019-01-23
8-K 2019-01-18
8-K 2018-08-22
8-K 2018-08-16
8-K 2018-06-11
8-K 2018-06-05
8-K 2018-05-29
8-K 2018-04-25
8-K 2018-01-22

CIA 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.2 cia-202093010qex102.htm
EX-31.1 cia-202093010qex311.htm
EX-31.2 cia-202093010qex312.htm
EX-32.1 cia-202093010qex321.htm
EX-32.2 cia-202093010qex322.htm

Citizens Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
1.81.41.10.70.40.02012201420172020
Assets, Equity
0.10.10.0-0.0-0.1-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
COMMISSION FILE NUMBER:  000-16509
cia-20200930_g1.jpg
CITIZENS, INC.
(Exact name of registrant as specified in its charter)

Colorado84-0755371
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

11815 Alterra Pkwy, Floor 15, Austin, TX 78758
(Current Address)

14231 Tandem Blvd, 2nd Floor, Austin, TX 78728
(Former Address)

Registrant's telephone number, including area code: (512) 837-7100

Securities registered pursuant to Section 12(b) of the Act
Class A Common StockCIA NYSE
(Title of each class)(Trading symbol(s))(Name of each exchange on which registered)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No
As of October 30, 2020, the Registrant had 52,654,016 shares of Class A common stock outstanding and 1,001,714 shares of Class B common stock outstanding.


                                                    



























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TABLE OF CONTENTS
Page Number
Part I. FINANCIAL INFORMATION
 Item 1. 
  
  
  
 Item 2.
 Item 3.
 Item 4.
Part II. OTHER INFORMATION 
 Item 1.
Item 1A.
 Item 2.
 Item 3.
 Item 4.
 Item 5.
 Item 6.


September 30, 2020 | 10-Q 1


Table of Contents                                                
PART I.  FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)September 30, 2020December 31, 2019
Assets(Unaudited)
Investments:  
Fixed maturities available-for-sale, at fair value (amortized cost: $1,308,056 and $1,293,853 in 2020 and 2019, respectively)
$1,444,579 1,377,959 
Equity securities, at fair value 21,151 16,033 
Policy loans83,962 82,005 
Real estate held-for-sale2,571 2,571 
Other long-term investments (portion measured at fair value $10,503 in 2020; less allowance for losses of $11 in 2020)
19,668 385 
Short-term investments 1,301 
Total investments1,571,931 1,480,254 
Cash and cash equivalents42,261 46,205 
Accrued investment income16,320 17,453 
Reinsurance recoverable11,970 3,696 
Deferred policy acquisition costs143,523 149,249 
Cost of insurance acquired12,083 13,455 
Goodwill and other intangible assets13,572 13,575 
Property and equipment, net16,089 5,904 
Due premiums11,222 12,656 
Other assets (less allowance for losses of $257 in 2020)
5,367 2,489 
Total assets$1,844,338 1,744,936 

See accompanying Notes to Consolidated Financial Statements.

September 30, 2020 | 10-Q 2


Table of Contents                                                

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets, Continued

(In thousands, except share amounts)September 30, 2020December 31, 2019
Liabilities and Stockholders' Equity(Unaudited)
Liabilities:  
Policy liabilities:  
Future policy benefit reserves:  
Life insurance$1,238,568 1,218,757 
Annuities79,875 76,380 
Accident and health806 1,031 
Dividend accumulations32,449 29,211 
Premiums paid in advance41,058 43,102 
Policy claims payable18,822 8,059 
Other policyholders' funds21,599 18,192 
Total policy liabilities1,433,177 1,394,732 
Commissions payable2,070 2,514 
Current federal income tax payable47,787 44,622 
Deferred federal income tax payable16,030 12,428 
Payable for securities in process of settlement5,995  
Other liabilities42,525 30,804 
Total liabilities1,547,584 1,485,100 
Commitments and contingencies (Note 8)
Stockholders' Equity:  
Common stock:
Class A, no par value, 100,000,000 shares authorized, 52,654,016 and 52,364,993 shares issued and outstanding in 2020 and 2019, respectively, including shares in treasury of 3,135,738 in 2020 and 2019
262,667 261,515 
Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2020 and 2019
3,184 3,184 
Accumulated deficit(83,890)(70,969)
Accumulated other comprehensive income:  
Net unrealized gains on fixed maturity securities, net of tax125,804 77,117 
Treasury stock, at cost(11,011)(11,011)
Total stockholders' equity296,754 259,836 
Total liabilities and stockholders' equity$1,844,338 1,744,936 

See accompanying Notes to Consolidated Financial Statements.


September 30, 2020 | 10-Q 3


Table of Contents                                                

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per share amounts)
2020201920202019
Revenues: 
Premiums:  
Life insurance$42,732 44,502 122,863 127,795 
Accident and health insurance236 350 745 1,018 
Property insurance1,140 1,157 3,313 3,464 
Net investment income14,997 15,039 45,081 44,150 
Realized investment gains (losses), net527 72 669 3,164 
Other income193 347 1,217 1,148 
Total revenues59,825 61,467 173,888 180,739 
Benefits and Expenses:  
Insurance benefits paid or provided:  
Claims and surrenders32,958 28,751 87,161 78,808 
Increase in future policy benefit reserves4,158 6,409 21,866 28,180 
Policyholders' dividends1,450 1,560 4,011 4,165 
Total insurance benefits paid or provided38,566 36,720 113,038 111,153 
Commissions7,712 8,879 22,279 25,147 
Other general expenses19,391 11,530 42,003 37,611 
Capitalization of deferred policy acquisition costs(4,892)(5,984)(13,632)(16,224)
Amortization of deferred policy acquisition costs6,760 7,835 18,940 21,043 
Amortization of cost of insurance acquired459 355 1,228 1,192 
Total benefits and expenses67,996 59,335 183,856 179,922 
Income (loss) before federal income tax(8,171)2,132 (9,968)817 
Federal income tax expense (benefit)(256)86 2,558 7,138 
Net income (loss)(7,915)2,046 (12,526)(6,321)
Per Share Amounts:  
Basic and diluted earnings (losses) per share of Class A common stock(0.16)0.04 (0.25)(0.13)
Basic and diluted earnings (losses) per share of Class B common stock(0.07)0.02 (0.12)(0.06)
Other Comprehensive Income:  
Unrealized gains on fixed maturity securities:  
Unrealized holding gains arising during period15,128 24,201 52,707 84,222 
Reclassification adjustment for losses (gains) included in net income (loss)2 (53)46 (30)
Unrealized gains on fixed maturity securities, net15,130 24,148 52,753 84,192 
Income tax expense on unrealized gains on fixed maturity securities1,020 1,627 4,067 5,815 
Other comprehensive income14,110 22,521 48,686 78,377 
Total comprehensive income$6,195 24,567 36,160 72,056 

See accompanying Notes to Consolidated Financial Statements.


September 30, 2020 | 10-Q 4


Table of Contents                                                

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)
 Common StockAccumulated
deficit
Accumulated other
comprehensive
income (loss)
Treasury
stock
Total
Stock-holders'
equity
(In thousands)Class AClass B
Balance at December 31, 2019$261,515 3,184 (70,969)77,117 (11,011)259,836 
Accounting standards adopted January 1, 2020  (395)  (395)
Comprehensive income (loss):
Net income (loss)  (3,584)  (3,584)
Unrealized investment gains (losses), net   (40,070) (40,070)
Total comprehensive income (loss)  (3,584)(40,070) (43,654)
Stock-based compensation(53)    (53)
Balance at March 31, 2020261,462 3,184 (74,948)37,047 (11,011)215,734 
Comprehensive income (loss):      
Net income (loss)  (1,027)  (1,027)
Unrealized investment gains (losses), net   74,647  74,647 
Total comprehensive income (loss)  (1,027)74,647  73,620 
Stock-based compensation439     439 
Balance at June 30, 2020261,901 3,184 (75,975)111,694 (11,011)289,793 
Comprehensive income (loss):      
Net income (loss)  (7,915)  (7,915)
Unrealized investment gains (losses), net   14,110  14,110 
Total comprehensive income (loss)  (7,915)14,110  6,195 
Stock-based compensation766     766 
Balance at September 30, 2020$262,667 3,184 (83,890)125,804 (11,011)296,754 

See accompanying Notes to Consolidated Financial Statements.

September 30, 2020 | 10-Q 5


Table of Contents                                                
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity, Continued
(Unaudited)
 Common StockAccumulated
deficit
Accumulated other
comprehensive
income (loss)
Treasury
stock
Total
Stock-holders'
equity
(In thousands)Class AClass B
Balance at December 31, 2018$259,793 3,184 (69,599)5,366 (11,011)187,733 
Comprehensive income (loss):
Net income (loss)— — (3,802)— — (3,802)
Unrealized investment gains (losses), net— — — 26,880 — 26,880 
Total comprehensive income (loss)— — (3,802)26,880 — 23,078 
Stock-based compensation1,083 — — — — 1,083 
Balance at March 31, 2019260,876 3,184 (73,401)32,246 (11,011)211,894 
Comprehensive income (loss):      
Net income (loss)— — (4,565)— — (4,565)
Unrealized investment gains (losses), net— — — 28,976 — 28,976 
Total comprehensive income (loss)— — (4,565)28,976 — 24,411 
Stock-based compensation127 — — — — 127 
Balance at June 30, 2019261,003 3,184 (77,966)61,222 (11,011)236,432 
Comprehensive income (loss):      
Net income (as restated)— — 2,046 — — 2,046 
Unrealized investment gains (losses), net— — — 22,521 — 22,521 
Total comprehensive income (loss)— — 2,046 22,521 — 24,567 
Stock-based compensation343 — — — — 343 
Balance at September 30, 2019$261,346 3,184 (75,920)83,743 (11,011)261,342 

See accompanying Notes to Consolidated Financial Statements.


September 30, 2020 | 10-Q 6


Table of Contents                                                

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


Nine Months Ended September 30,
(In thousands)
20202019
Cash flows from operating activities: 
Net income (loss)$(12,526)(6,321)
Adjustments to reconcile net gain (loss) to net cash provided by operating activities:  
Realized investment (gains) losses on sale of investments and other assets(669)(3,164)
Net deferred policy acquisition costs5,308 4,819 
Amortization of cost of insurance acquired1,228 1,192 
Depreciation771 1,269 
Amortization of premiums and discounts on investments6,616 10,422 
Stock-based compensation2,020 1,930 
Deferred federal income tax expense (benefit)(386)560 
Change in:  
Accrued investment income1,133 819 
Reinsurance recoverable(8,274)68 
Due premiums1,434 2,588 
Future policy benefit reserves21,654 27,994 
Other policyholders' liabilities15,364 2,309 
Federal income tax payable3,165 6,580 
Commissions payable and other liabilities145 1,699 
Other, net(2,967)(1,851)
Net cash provided by (used in) operating activities34,016 50,913 
Cash flows from investing activities:  
Purchases of fixed maturity securities, available-for-sale(187,267)(210,445)
Sales of fixed maturity securities, available-for-sale17,524 39,708 
Maturities and calls of fixed maturity securities, available-for-sale154,873 111,757 
Purchases of equity securities(4,473) 
Principal payments on mortgage loans9 6 
Increase in policy loans, net(1,957)(1,141)
Sales of other long-term investments and real estate 6,981 
Purchases of other long-term investments(19,115) 
Sales of property and equipment 15 
Purchases of property and equipment(124)(509)
Maturities of short-term investments1,300 7,940 
Purchases of short-term investments (2,456)
Net cash provided by (used in) investing activities(39,230)(48,144)
See accompanying Notes to Consolidated Financial Statements.

September 30, 2020 | 10-Q 7


Table of Contents                                                
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
Nine Months Ended September 30,
(In thousands)
20202019
Cash flows from financing activities:  
Annuity deposits$5,542 4,948 
Annuity withdrawals(3,403)(5,685)
Other(869)(377)
Net cash provided by (used in) financing activities1,270 (1,114)
Net increase (decrease) in cash and cash equivalents(3,944)1,655 
Cash and cash equivalents at beginning of year46,205 45,492 
Cash and cash equivalents at end of period$42,261 47,147 


SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the nine months ended September 30, 2020 and 2019, various fixed maturity issuers exchanged securities with book values of $5.3 million and $12.2 million, respectively, for securities of equal value.

The Company had net unsettled security trades of $6.0 million at September 30, 2020 and 2019.

The Company recognized right-of-use assets of $12.0 million in exchange for new operating lease liabilities during the nine months ended September 30, 2020.


See accompanying Notes to Consolidated Financial Statements.


September 30, 2020 | 10-Q 8


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

(1) FINANCIAL STATEMENTS

BASIS OF PRESENTATION AND CONSOLIDATION

The consolidated financial statements include the accounts and operations of Citizens, Inc. ("Citizens" or the "Company"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA"), CICA Life Ltd. ("CICA Ltd."), Citizens National Life Insurance Company ("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC") and Computing Technology, Inc. ("CTI"). All significant inter-company accounts and interactions have been eliminated. Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company", "we", "us" or "our".

The consolidated balance sheets as of September 30, 2020, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three and nine months ended September 30, 2020 and September 30, 2019 and cash flows for the nine months ended September 30, 2020 and September 30, 2019 have been prepared by the Company without audit. In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at September 30, 2020 and for comparative periods have been made. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission ("SEC").  Accordingly, the consolidated financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.  Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

We provide primarily life insurance and a small amount of health insurance policies through our insurance subsidiaries - CICA, CICA Ltd., CNLIC, SPLIC and MGLIC.  CICA and CNLIC issued ordinary whole-life policies, credit life and disability, and accident and health related policies, throughout the Midwest and southern U.S. until they ceased most domestic sales beginning January 1, 2017. CICA Ltd. primarily issues endowment and ordinary whole-life policies to non-U.S. residents. SPLIC offers final expense and home service life insurance in Louisiana, Arkansas and Mississippi. SPFIC writes a limited amount of property insurance in Louisiana and Arkansas. MGLIC provides industrial life policies through independent funeral homes in Mississippi.

CTI provides data processing systems and services to the Company.

USE OF ESTIMATES

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

Significant estimates include those used in the evaluation of credit allowances on fixed maturity securities, actuarially determined assets and liabilities and assumptions, tests of goodwill impairment, valuation allowance on deferred tax assets, valuation of uncertain tax positions and contingencies relating to litigation and regulatory matters.  Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the consolidated financial statements.


September 30, 2020 | 10-Q 9


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

For a description of our significant accounting policies, see Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, which should be read in conjunction with these accompanying consolidated financial statements.

Investment securities. We assess all available-for-sale ("AFS") fixed maturity securities in an unrealized loss position for expected credit losses. First, we assess whether we intend to sell, or it is more likely than not that we will be required to sell, the security before recovery of its amortized cost. If either of the criteria is met, the security's amortized cost is written down to its fair value. For AFS fixed maturity securities that do not meet either criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. Any impairment that has not been recorded through an allowance for credit losses is recognized in accumulated other comprehensive income on our consolidated balance sheets. Changes in the allowance for credit losses are recorded through realized capital losses.

The Company made a policy election to exclude accrued interest from the amortized cost of AFS fixed maturity securities and report accrued interest separately in accrued investment income in the consolidated balance sheets. AFS fixed maturity securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.

We initially estimate the fair value of investments in private equity funds by reference to the transaction price. Subsequently, we obtain the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are audited annually. Recognition of investment income on these funds is delayed due to the availability of the related financial statements, which are generally obtained from the partnerships' general partners. As a result, our private equity funds are generally reported on a three-month delay. These investments are included in other long-term investments.

(2) ACCOUNTING PRONOUNCEMENTS

ACCOUNTING STANDARDS RECENTLY ADOPTED

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

September 30, 2020 | 10-Q 10


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CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In September 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU requires an entity in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an "other asset"). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. We adopted this standard effective January 1, 2020. The adoption had no impact on our consolidated financial statements.

ACCOUNTING STANDARDS NOT YET ADOPTED

In August 2018, the FASB issued ASU No. 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. This ASU amends four key areas of the accounting and impacts disclosures for long-duration insurance and investment contracts:

Requires updated assumptions for liability measurement. Assumptions used to measure the liability for traditional insurance contracts, which are typically determined at contract inception, will now be reviewed at least annually, and, if there is a change, updated, with the effect recorded in net income;
Standardizes the liability discount rate. The liability discount rate will be a market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income;
Provides greater consistency in measurement of market risk benefits. The two previous measurement models have been reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk;
Simplifies amortization of deferred acquisition costs. Previous earnings-based amortization methods have been replaced with a more level amortization basis; and
Requires enhanced disclosures. The new disclosures include rollforwards and information about significant assumptions and the effects of changes in those assumptions.

For calendar-year public companies, the changes will be effective on January 1, 2022. In July 2020, the FASB tentatively agreed to defer the original effective date by one year. If finalized, the new guidance will be effective for annual and interim reporting periods beginning January 1, 2023, however early adoption is permitted. The Company is evaluating the impact this guidance will have on our consolidated financial statements. This new guidance is expected to have a material impact on our consolidated financial statements.

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

(3) SEGMENT INFORMATION

The Company has two reportable segments:  Life Insurance and Home Service Insurance.  The Life Insurance and Home Service Insurance portions of the Company constitute separate businesses. CICA, CICA Ltd. and CNLIC constitute the Life Insurance segment, and SPLIC, SPFIC and MGLIC constitute the Home Service Insurance segment. In addition to the Life Insurance and Home Service Insurance business, the Company also operates other non-insurance portions of the Company ("Other Non-Insurance Enterprises"), which primarily include the Company's IT and Corporate-support functions that are included in the tables presented below to properly reconcile the segment information with the consolidated financial statements of the Company.

The accounting policies of the reportable segments and Other Non-Insurance Enterprises are presented in accordance with U.S. GAAP and are the same as those used in the preparation of the consolidated financial

September 30, 2020 | 10-Q 11


Table of Contents                                                

CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
statements.  The Company evaluates profit and loss performance based on U.S. GAAP income before federal income taxes for its two reportable segments.

The Company's Other Non-Insurance Enterprises are the only reportable difference between segments and consolidated operations.

Life InsuranceHome Service InsuranceOther Non-Insurance EnterprisesConsolidated
Three Months Ended September 30, 2020
(In thousands)
Revenues:    
Premiums$32,265 11,843  44,108 
Net investment income11,507 3,200 290 14,997 
Realized investment gains (losses), net133 388 6 527 
Other income189 1 3 193 
Total revenues44,094 15,432 299 59,825 
Benefits and expenses:   
Insurance benefits paid or provided:    
Claims and surrenders25,023 7,935  32,958 
Increase in future policy benefit reserves3,274 884  4,158 
Policyholders' dividends1,443 7  1,450 
Total insurance benefits paid or provided29,740 8,826  38,566 
Commissions4,140 3,572  7,712 
Other general expenses1,915 4,524 12,952 19,391 
Capitalization of deferred policy acquisition costs(3,512)(1,380) (4,892)
Amortization of deferred policy acquisition costs6,190 570  6,760 
Amortization of cost of insurance acquired113 346  459 
Total benefits and expenses38,586 16,458 12,952 67,996 
Income (loss) before federal income tax expense$5,508 (1,026)(12,653)(8,171)


September 30, 2020 | 10-Q 12


Table of Contents                                                

CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Life InsuranceHome Service InsuranceOther Non-Insurance EnterprisesConsolidated
Nine Months Ended September 30, 2020
(In thousands)
Revenues:    
Premiums$92,146 34,775  126,921 
Net investment income34,332 9,788 961 45,081 
Realized investment gains (losses), net1,259 (405)(185)669 
Other income1,195 19 3 1,217 
Total revenues128,932