Recast for Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI) – Unaudited

Accounting Standards Update No. 2018-12

2022 NOTES TO FILING

Introductory note

Citizens, Inc., also referred to as “Citizens,” “we,” “our,” “its” or the “Company,” adopted Accounting Standards Update No. 2018-12 (“ASU 2018-12”), Targeted Improvements to the Accounting for Long-Duration Contracts (“LDTI”) on January 1, 2023, on a modified retrospective basis with a transition date of January 1, 2021. This Exhibit 99.1 to the Form 8-K is for informational purposes only and includes unaudited figures. The financial statements and related information included within are those management feels are most important and relevant for the users of the Company’s consolidated financial statements and should be read in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2022, originally filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2023 (“2022 Form 10-K”). Certain quarterly information not typically included in the 2022 Form 10-K has been included herein for purposes of additional analysis.

Adoption of New Accounting Standard

Citizens has recast certain information contained in its 2022 Form 10-K to reflect the adoption of LDTI. In the first quarter of 2023, the Company adopted ASU 2018-12 which updated certain requirements for the accounting for long-duration insurance contracts and, in accordance with accounting principles generally accepted in the U.S., the Company is required to restate previously reported prior period balances in future financial statements for comparative purposes. The following is a discussion of the most significant impacts as a result of the adoption of LDTI.

•Cash flow assumptions and measuring liability for future policy benefits – ASU 2018-12 requires the Company to review its cash flow assumptions at least annually and update, when necessary, with the impact recognized in net income in the period of the change. Upon adoption, the Company recorded a charge of $0.1 million to retained earnings, net of tax, primarily from capping net premium ratios for certain policyholder benefit cohorts at 100%, increasing reserves for certain non-premium paying cohorts and flooring certain DAC cohorts at zero.

•Discount rate – The discount rate assumption is prescribed by ASU 2018-12 as an upper-medium (low credit risk) fixed-income yield and is required to be updated every quarter. The change in the liability as a result of updating the discount rate assumption is recognized in other comprehensive income (loss) (“OCI”). Upon adoption, there was a pretax decrease to accumulated other comprehensive income (loss) in the amount of $370.3 million as a result of remeasuring in force contract liabilities using current upper-medium grade fixed income instrument yields. The adjustment largely reflects the difference between discount rates locked-in at contract inception versus current discount rates at transition.

•Deferred policy acquisition costs and similar balances – Deferred policy acquisition costs (“DAC”) and other capitalized costs such as cost of insurance acquired (“COIA”) and unearned revenue are amortized on a constant level or straight-line basis over the expected term of the contracts. Upon adoption, the Company recorded a pretax decrease in the amount of $35.2 million to accumulated other comprehensive income (loss) for the removal of net cumulative adjustments to DAC, COIA and unearned revenue associated with unrealized gains and losses previously recorded in accumulated other comprehensive income (loss).

•Other comprehensive income (“OCI”) was reduced by $316.8 million primarily due to the difference in the discount rate used prior to transition and the discount rate at January 1, 2021 and the elimination of the adjustments to DAC, COIA and unearned revenue associated with unrealized gains and losses described above after adjusting the changes for taxes.

Change in Balance Sheet Presentation

The Company revised the presentation of its future policy benefit reserves, annuity reserves, supplemental contracts without life contingency reserves and other policyholders’ funds in the consolidated balance sheet. Previously, annuity reserves were reported under future policy benefit reserves while supplemental contracts without life contingency reserves were reported in other policyholders’ funds in the consolidated balance sheet. The Company revised prior periods’ balance sheets to combine annuity reserves and supplemental contracts without life contingency reserves into the annuities financial statement line item under policyholders’ funds in the updated presentation.

FORWARD-LOOKING STATEMENTS

This exhibit 99.1 to the Form 8-K (the “Recast Financial Supplement”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Recast Financial Supplement other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, our expected capital needs, and our objectives for future operations, are forward-looking statements. Forward-looking statements may be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 10, 2023. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Recast Financial Supplement may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should read this Recast Financial Supplement completely and with the understanding that actual results may be materially different from expectations. All forward-looking statements made in this Recast Financial Supplement are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this Recast Financial Supplement, and we do not undertake any obligation to update or revise any forward-looking statements to reflect the occurrences of events, unanticipated or otherwise, other than as may be required by law.

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets (Recast for LDTI)

As of
(Unaudited, in thousands)

Dec. 31, 2022 Dec. 31, 2021
Assets
Investments:
Fixed maturity securities available-for-sale $ 1,179,619 1,470,617
Equity securities 11,590 14,844
Policy loans 78,773 80,307
Other long-term investments 69,558 57,399
Short-term investments 1,241 –
Total investments 1,340,781 1,623,167
Cash and cash equivalents 22,973 27,294
Accrued investment income 17,131 16,197
Reinsurance recoverable 4,560 5,539
Deferred policy acquisition costs 162,927 152,418
Cost of insurance acquired 10,647 11,268
Federal income tax receivable 601 762
Deferred tax asset, net – 5,532
Property and equipment, net 12,926 14,074
Due premiums 11,829 10,748
Other assets 6,328 5,739
Total assets $ 1,590,703 1,872,738
Liabilities and Stockholders’ Equity
Liabilities:
Policy liabilities:
Future policy benefit reserves:
Life insurance $ 1,198,647 1,531,711
Accident and health 767 784
Future policy benefit reserves 1,199,414 1,532,495
Policyholders’ funds:
Annuities 121,422 109,441
Dividend accumulations 41,663 37,760
Premiums paid in advance 36,384 40,690
Policy claims payable 9,884 14,590
Other policyholders’ funds 7,501 6,740
Total policyholders’ funds 216,854 209,221
Total policy liabilities 1,416,268 1,741,716
Commissions payable 1,967 2,285
Deferred federal income tax liability, net 3,653 –
Other liabilities 41,025 28,780
Total liabilities 1,462,913 1,772,781
Stockholders’ Equity:
Class A common stock 268,147 265,561
Class B common stock 3,184 3,184
Accumulated deficit 16,309 (9,698)
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on fixed maturity securities, net of tax (137,044) (138,989)
Treasury stock, at cost (22,806) (20,101)
Total stockholders’ equity 127,790 99,957
Total liabilities and stockholders’ equity $ 1,590,703 1,872,738

Exhibit 99.1 | Citizens, Inc. 8-K 1

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets, Continued
Quarterly Summary (Recast for LDTI)

As of

(Unaudited, in thousands)

Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022
Assets
Investments:
Fixed maturity securities available-for-sale $ 1,179,619 1,161,048 1,237,004 1,355,410
Equity securities 11,590 11,789 12,711 13,902
Policy loans 78,773 78,085 78,586 79,345
Other long-term investments 69,558 62,717 66,002 63,927
Short-term investments 1,241 1,241 – –
Total investments 1,340,781 1,314,880 1,394,303 1,512,584
Cash and cash equivalents 22,973 21,007 22,407 21,298
Accrued investment income 17,131 16,615 16,497 15,755
Reinsurance recoverable 4,560 3,485 3,426 3,574
Deferred policy acquisition costs 162,927 159,104 156,356 153,640
Cost of insurance acquired 10,647 10,822 10,988 11,139
Tax asset 601 – 204 3,851
Property and equipment, net 12,926 13,310 13,689 14,088
Due premiums 11,829 10,551 9,538 8,971
Other assets 6,328 6,572 6,801 5,886
Total assets 1,590,703 1,556,346 1,634,209 1,750,786
Liabilities and Stockholders’ Equity
Liabilities:
Policy liabilities:
Future policy benefit reserves:
Life insurance $ 1,198,647 1,190,502 1,263,346 1,380,100
Accident and health 767 729 745 766
Future policy benefit reserves 1,199,414 1,191,231 1,264,091 1,380,866
Policyholders’ funds:
Annuities 121,422 118,452 114,923 111,751
Dividend accumulations 41,663 40,483 39,622 38,575
Premiums paid in advance 36,384 38,437 39,636 40,433
Policy claims payable 9,884 7,979 8,475 9,659
Other policyholders’ funds 7,501 7,235 7,286 7,088
Total policyholders’ funds 216,854 212,586 209,942 207,506
Total policy liabilities 1,416,268 1,403,817 1,474,033 1,588,372
Commissions payable 1,967 1,772 1,917 1,816
Deferred federal income tax liability, net 3,653 1,992 – –
Current federal income tax payable – 2,254 2,167 –
Payable for securities in process of settlement – – 3,291 3,815
Other liabilities 41,025 35,466 29,477 31,307
Total liabilities 1,462,913 1,445,301 1,510,885 1,625,310
Stockholders’ Equity:
Class A common stock 268,147 267,988 267,850 267,442
Class B common stock 3,184 3,184 3,184 3,184
Accumulated deficit 16,309 2,650 (757) (3,249)
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on fixed maturity securities, net of tax (137,044) (140,493) (125,552) (121,800)
Treasury stock, at cost (22,806) (22,284) (21,401) (20,101)
Total stockholders’ equity 127,790 111,045 123,324 125,476
Total liabilities and stockholders’ equity $ 1,590,703 1,556,346 1,634,209 1,750,786

Exhibit 99.1 | Citizens, Inc. 8-K 2

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

For the Years Ended
(Unaudited, in thousands, except share amounts)

Dec. 31, 2022 Dec. 31, 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), net (10,291) 10,991
Other income 3,675 3,332
Total revenues 232,524 250,546
Benefits and Expenses:
Insurance benefits paid or provided:
Claims and surrenders 119,935 119,735
Increase in future policy benefit reserves 5,290 9,782
Policyholder liability remeasurement (gain) loss 2,398 1,425
Policyholders’ dividends 6,013 6,180
Total insurance benefits paid or provided 133,636 137,122
Commissions 36,222 35,463
Other general expenses 45,177 43,370
Capitalization of deferred policy acquisition costs (24,899) (22,740)
Amortization of deferred policy acquisition costs 14,390 13,445
Amortization of cost of insurance acquired 621 757
Goodwill impairment – 12,624
Total benefits and expenses 205,147 220,041
Income (loss) before federal income tax 27,377 30,505
Federal income tax expense (benefit) 1,370 (42,201)
Net income (loss) 26,007 72,706
Basic Earnings Per Share:
Class A common stock $ 0.52 1.46
Class B common stock – 0.73
Diluted Earnings Per Share:
Class A common stock 0.51 1.44
Class B common stock – 0.72
Other Comprehensive Income (Loss):
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) arising during period (328,673) (41,123)
Reclassification adjustment for losses (gains) included in net income (loss) 104 (243)
Unrealized gains (losses) on fixed maturity securities, net (328,569) (41,366)
Change in current discount rate for liability for future policy benefits 337,776 92,396
Income tax expense (benefit) on unrealized gains (losses) on fixed maturity securities 7,262 1,449
Other comprehensive income (loss) 1,945 49,581
Total comprehensive income (loss) $ 27,952 122,287

Exhibit 99.1 | Citizens, Inc. 8-K 3

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss), Continued
Quarterly Summary (Recast for LDTI)

For the Three Months Ended

(Unaudited, in thousands, except share amounts)

Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022
Revenues:
Premiums:
Life insurance $ 46,656 42,423 40,761 37,746
Accident and health insurance 413 299 280 286
Property insurance 1,182 1,153 1,183 1,332
Net investment income 17,443 16,604 15,892 15,487
Investment related gains (losses), net 298 (4,991) (5,016) (582)
Other income 1,265 688 634 1,088
Total revenues 67,257 56,176 53,734 55,357
Benefits and Expenses:
Insurance benefits paid or provided:
Claims and surrenders 33,675 30,729 27,097 28,434
Increase in future policy benefit reserves 308 1,138 3,730 114
Policyholder liability remeasurement (gain) loss 1,152 (89) 667 668
Policyholders’ dividends 1,756 1,389 1,515 1,353
Total insurance benefits paid or provided 36,891 33,167 33,009 30,569
Commissions 10,415 9,210 8,924 7,673
Other general expenses 12,188 11,559 10,400 11,030
Capitalization of deferred policy acquisition costs (7,562) (6,372) (6,184) (4,781)
Amortization of deferred policy acquisition costs 3,739 3,624 3,468 3,559
Amortization of cost of insurance acquired 175 166 151 129
Total benefits and expenses 55,846 51,354 49,768 48,179
Income (loss) before federal income tax 11,411 4,822 3,966 7,178
Federal income tax expense (benefit) (2,248) 1,415 1,474 729
Net income (loss) 13,659 3,407 2,492 6,449
Basic Earnings Per Share:
Class A common stock $ 0.27 0.07 0.05 0.13
Diluted Earnings Per Share:
Class A common stock 0.27 0.06 0.05 0.13
Other Comprehensive Income (Loss):
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) arising during period 12,005 (88,382) (119,531) (132,765)
Reclassification adjustment for losses (gains) included in net income (loss) 26 43 (24) 59
Unrealized gains (losses) on fixed maturity securities, net 12,031 (88,339) (119,555) (132,706)
Change in current discount rate for liability for future policy benefits (7,482) 73,214 120,437 151,607
Income tax expense (benefit) on unrealized gains (losses) on fixed maturity securities 1,100 (184) 4,634 1,712
Other comprehensive income (loss) 3,449 (14,941) (3,752) 17,189
Total comprehensive income (loss) $ 17,108 (11,534) (1,260) 23,638

Exhibit 99.1 | Citizens, Inc. 8-K 4

RELATED INFORMATION

(Recast for LDTI) (Unaudited)

EARNINGS PER SHARE

For the Three Months Ended For the Years Ended

(In thousands, except per share amounts)

Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2022 Dec. 31, 2021
Net income (loss) $ 13,659 3,407 2,492 6,449 $ 26,007 72,706
Numerator for Basic Earnings Per Share:
Net income (loss) allocated to Class A common stock $ 13,659 3,407 2,492 6,449 $ 26,007 72,481
Net income (loss) allocated to Class B common stock – – – – – 225
Net income (loss) $ 13,659 3,407 2,492 6,449 $ 26,007 72,706
Denominator for Basic Earnings Per Share:
Weighted average shares of Class A outstanding 49,946 50,075 50,373 50,236 50,139 49,664
Weighted average shares of Class B outstanding – – – – – 308
Total weighted average shares outstanding 49,946 50,075 50,373 50,236 50,139 49,972
Basic earnings (loss) per share of Class A common stock $ 0.27 0.07 0.05 0.13 $ 0.52 1.46
Basic earnings (loss) per share of Class B common stock – – – – – 0.73
Numerator for Diluted Earnings Per Share:
Net income (loss) allocated to Class A common stock $ 13,659 3,407 2,492 6,449 $ 26,007 72,484
Net income (loss) allocated to Class B common stock – – – – – 222
Net income (loss) $ 13,659 3,407 2,492 6,449 $ 26,007 72,706
Denominator for Diluted Earnings Per Share:
Weighted average shares of Class A outstanding 50,674 50,799 51,065 50,906 50,867 50,337
Weighted average shares of Class B outstanding – – – – – 308
Total weighted average shares outstanding 50,674 50,799 51,065 50,906 50,867 50,645
Diluted earnings (loss) per share of Class A common stock $ 0.27 0.06 0.05 0.13 $ 0.51 1.44
Diluted earnings (loss) per share of Class B common stock – – – – – 0.72

Exhibit 99.1 | Citizens, Inc. 8-K 5

SEGMENT AND OTHER OPERATING INFORMATION

Life Insurance
For the Three Months Ended For the Years Ended

(In thousands)

Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2022 Dec. 31, 2021
Revenues:
Premiums $ 36,192 31,696 29,834 26,931 $ 124,653 126,058
Net investment income (loss) 13,556 12,806 12,347 11,971 50,680 47,216
Investment related gains (losses), net (182) (4,367) (3,984) (293) (8,826) 9,176
Other income (loss) 1,265 682 633 1,088 3,668 3,362
Total revenues 50,831 40,817 38,830 39,697 170,175 185,812
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 27,808 24,742 21,568 21,458 95,576 91,390
Increase in future policy benefit reserves (914) 195 3,006 1,376 3,663 7,262
Policyholder liability remeasurement (gain) loss 1,179 (214) 580 414 1,959 1,390
Policyholders’ dividends 1,749 1,382 1,509 1,350 5,990 6,140
Total insurance benefits paid or provided 29,822 26,105 26,663 24,598 107,188 106,182
Commissions 6,330 5,103 4,792 3,806 20,031 18,747
Other general expenses 6,127 6,016 5,358 5,691 23,192 20,846
Capitalization of deferred policy acquisition costs (5,737) (4,592) (4,307) (3,306) (17,942) (16,174)
Amortization of deferred policy acquisition costs 3,109 3,081 2,950 3,020 12,160 11,536
Amortization of cost of insurance acquired 29 32 38 24 123 150
Goodwill impairment – – – – – 12,624
Total benefits and expenses 39,680 35,745 35,494 33,833 144,752 153,911
Income (loss) before federal income tax $ 11,151 5,072 3,336 5,864 $ 25,423 31,901
Home Service Insurance
For the Three Months Ended For the Years Ended

(In thousands)

Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2022 Dec. 31, 2021
Revenues:
Premiums $ 12,059 12,179 12,390 12,433 $ 49,061 48,670
Net investment income (loss) 3,578 3,527 3,283 3,244 13,632 13,224
Investment related gains (losses), net 352 (462) (925) (242) (1,277) 618
Other income (loss) – – 1 – 1 7
Total revenues 15,989 15,244 14,749 15,435 61,417 62,519
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 5,867 5,987 5,529 6,976 24,359 28,345
Increase in future policy benefit reserves 1,222 943 724 (1,262) 1,627 2,520
Policyholder liability remeasurement (gain) loss (27) 125 87 254 439 35
Policyholders’ dividends 7 7 6 3 23 40
Total insurance benefits paid or provided 7,069 7,062 6,346 5,971 26,448 30,940
Commissions 4,085 4,107 4,132 3,867 16,191 16,716
Other general expenses 4,351 4,228 3,515 4,350 16,444 14,739
Capitalization of deferred policy acquisition costs (1,825) (1,780) (1,877) (1,475) (6,957) (6,566)
Amortization of deferred policy acquisition costs 630 543 518 539 2,230 1,909
Amortization of cost of insurance acquired 146 134 113 105 498 607
Total benefits and expenses 14,456 14,294 12,747 13,357 54,854 58,345
Income (loss) before federal income tax $ 1,533 950 2,002 2,078 $ 6,563 4,174

Exhibit 99.1 | Citizens, Inc. 8-K 6

Other Non-Insurance Enterprises
For the Three Months Ended For the Years Ended

(In thousands)

Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2022 Dec. 31, 2021
Revenues:
Premiums $ – – – – $ – –
Net investment income (loss) 309 271 262 272 1,114 1,055
Investment related gains (losses), net 128 (162) (107) (47) (188) 1,197
Other income (loss) – 6 – – 6 (37)
Total revenues 437 115 155 225 932 2,215
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders – – – – – –
Increase in future policy benefit reserves – – – – – –
Policyholder liability remeasurement (gain) loss – – – – – –
Policyholders’ dividends – – – – – –
Total insurance benefits paid or provided – – – – – –
Commissions – – – – – –
Other general expenses 1,710 1,315 1,527 989 5,541 7,785
Capitalization of deferred policy acquisition costs – – – – – –
Amortization of deferred policy acquisition costs – – – – – –
Amortization of cost of insurance acquired – – – – – –
Total benefits and expenses 1,710 1,315 1,527 989 5,541 7,785
Income (loss) before federal income tax $ (1,273) (1,200) (1,372) (764) $ (4,609) (5,570)
Consolidated
For the Three Months Ended For the Years Ended

(In thousands)

Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2022 Dec. 31, 2021
Revenues:
Premiums $ 48,251 43,875 42,224 39,364 $ 173,714 174,728
Net investment income (loss) 17,443 16,604 15,892 15,487 65,426 61,495
Investment related gains (losses), net 298 (4,991) (5,016) (582) (10,291) 10,991
Other income (loss) 1,265 688 634 1,088 3,675 3,332
Total revenues 67,257 56,176 53,734 55,357 232,524 250,546
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders 33,675 30,729 27,097 28,434 119,935 119,735
Increase in future policy benefit reserves 308 1,138 3,730 114 5,290 9,782
Policyholder liability remeasurement (gain) loss 1,152 (89) 667 668 2,398 1,425
Policyholders’ dividends 1,756 1,389 1,515 1,353 6,013 6,180
Total insurance benefits paid or provided 36,891 33,167 33,009 30,569 133,636 137,122
Commissions 10,415 9,210 8,924 7,673 36,222 35,463
Other general expenses 12,188 11,559 10,400 11,030 45,177 43,370
Capitalization of deferred policy acquisition costs (7,562) (6,372) (6,184) (4,781) (24,899) (22,740)
Amortization of deferred policy acquisition costs 3,739 3,624 3,468 3,559 14,390 13,445
Amortization of cost of insurance acquired 175 166 151 129 621 757
Goodwill impairment – – – – – 12,624
Total benefits and expenses 55,846 51,354 49,768 48,179 205,147 220,041
Income (loss) before federal income tax $ 11,411 4,822 3,966 7,178 $ 27,377 30,505

Exhibit 99.1 | Citizens, Inc. 8-K 7

Disclaimer

Citizens Inc. published this content on 24 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 August 2023 19:36:03 UTC.