Citizens, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Citizens is an insurance holding company serving customers in 31 U.S. states and more than 70 countries through Life Insurance and Home Service Insurance segments. Most international policies are U.S.-dollar-denominated. Figures below are in U.S. dollars.
Financial performance and condition
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Total revenue | $250.5 million | $238.9 million | Up 4.9%; investment gains contributed materially. |
| Premiums | $174.7 million | $175.3 million | Down 0.3%; first-year premiums rose 11.2%, while Life Insurance renewals declined. |
| Net investment income | $61.5 million | $60.2 million | Up 2.2%; average portfolio yield was 4.24% in both years. |
| Investment-related gains | $11.0 million | $1.5 million | Increase chiefly reflected limited partnership fair-value gains. |
| Benefits and expenses | $257.2 million | $251.2 million | Included $12.6 million goodwill impairment in 2021; 2020 general expenses included $10.0 million of change-in-control severance costs. |
| Pre-tax loss | $6.7 million | $12.3 million | Improved, but remained a loss before tax. |
| Net income (loss) | $36.8 million | $(11.0) million | 2021 result was driven by a $43.8 million tax benefit from release of an uncertain tax position. |
| Operating cash flow | $40.5 million | $48.8 million | Lower year over year. |
| Total assets | $1.855 billion | $1.843 billion | Policy liabilities totaled $1.487 billion at year-end 2021. |
| Cash and debt | $27.3 million cash; no debt outstanding | $34.1 million cash | A $20 million revolving credit facility was available; it was undrawn at year-end. |
Class A diluted EPS was $0.73, versus a loss of $0.22 in 2020. The 2021 effective tax rate and earnings were substantially affected by the nonrecurring tax-position release; the filing reports a consolidated pre-tax loss despite positive net income.
Business and segment developments
- Life Insurance pre-tax income fell to $0.9 million from $9.9 million, including the $12.6 million goodwill impairment. Segment premiums declined 2.4%, mainly because of lower renewal premiums.
- Home Service Insurance narrowed its pre-tax loss to $2.0 million from $3.5 million. Revenue increased 5.2%; the segment introduced a higher-face-value whole-life product and a critical-illness product.
- Insurance issued rose 16.1% to $411.3 million. Total insurance in force was approximately $4.2 billion; direct life insurance in force was $4.6 billion.
- The company bought back all outstanding Class B shares for $9.1 million in 2021, becoming non-controlled; Class A shareholders gained the right to elect all directors. Gerald W. Shields became permanent CEO on January 1, 2022.
Liquidity, capital and investments
- Cash from operations remained positive at $40.5 million. Cash declined to $27.3 million, partly due to timing of cash flows and investment purchases. Management said operating cash flow and invested assets were expected to meet cash needs.
- Invested assets were $1.650 billion, including $1.471 billion of available-for-sale fixed maturities. Fixed maturities were 98% investment grade; 38.5% were rated BBB. Net unrealized gains on fixed maturities declined to $126.9 million from $167.9 million, primarily amid rising rates.
- Policyholder liquidity is a key exposure: 40% of insurance in force was in endowment products, and approximately 15% of endowments in force were expected to mature over the next five years. Large lump-sum elections could require asset sales.
- Insurance subsidiaries met stated regulatory capital requirements at year-end. Citizens also agreed to provide up to $10 million to CICA International if needed to maintain its specified capital threshold. Dividend and other transfers from subsidiaries are subject to regulatory restrictions.
- Known contractual obligations totaled $1.538 billion, predominantly future policy benefits. The company reported no off-balance-sheet arrangements.
Outlook, risks and unusual items
- No quantified earnings, revenue or margin guidance is provided. Management’s strategy emphasizes sales growth, retention, product development, process and technology improvements, and expense discipline. The company planned to reassess its Florida Hispanic-market sales approach in 2022 after agent recruitment lagged expectations.
- COVID-19 increased death claims in 2021 and may continue to affect mortality, sales and distribution, policy surrenders, and investment markets. Death claim benefits rose 15.4% consolidated; management attributed the increase partly to COVID-19.
- Key financial risks include low interest rates and spread compression, rising-rate unrealized investment losses and potential surrenders, uncertain endowment maturities, catastrophic property claims, reinsurance availability and counterparty performance, and the concentration of premiums in foreign markets.
- Foreign regulatory and political risks are significant: about 68% of direct premiums came from international business, principally Latin America and the Pacific Rim. The company notes that its policies generally have not been registered or approved in those foreign jurisdictions and relies on independent consultants to comply with local requirements.
- A trade-secret and unfair-competition lawsuit involving former agents and a competitor remained pending, with trial scheduled for May 2022. The filing does not provide a clear estimate of any potential loss.
- The $43.8 million uncertain tax position release followed expiration of the statute of limitations for 2017. The resulting increase in the Life Insurance segment’s carrying value, along with the low-rate environment, led to a full $12.6 million goodwill write-off.
- Long-duration insurance accounting changes (LDTI) were scheduled for adoption in 2023. The company said the impact was still under evaluation and could materially affect accumulated other comprehensive income and future earnings patterns.
Important facts for investors to verify
- How much of reported 2021 net income is attributable to the one-time $43.8 million tax benefit, and whether core pre-tax results improve.
- Whether renewal premiums and persistency stabilize, particularly in international Life Insurance, and whether new products generate durable sales.
- Actual COVID-related claims, future policyholder surrenders, and endowment maturity elections versus management assumptions.
- Changes in fixed-maturity valuations, investment yields, limited-partnership performance and funding commitments, and statutory capital at each insurance subsidiary.
- Developments in foreign-market regulatory compliance and the pending trade-secret litigation.
- The quantified financial and reporting effects of LDTI adoption and any subsequent guidance or material changes in outlook.