Citizens, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2023, with balance-sheet comparisons to December 31, 2022. Citizens is an insurer with Life Insurance and Home Service Insurance segments; it focuses mainly on whole life, endowment and final-expense products. Amounts below are in millions unless stated otherwise.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 or prior date |
|---|---|---|
| Total revenue | $55.9 | $55.4 |
| Net income | $4.9 | $6.4 |
| Class A diluted EPS | $0.10 | $0.13 |
| Net investment income | $17.1 | $15.5 |
| Operating cash flow | $7.4 | $12.1 |
| Cash and cash equivalents | $18.9 at March 31 | $23.0 at December 31 |
| Total assets | $1,638.5 at March 31 | $1,590.7 at December 31 |
| Total liabilities / stockholders’ equity | $1,484.2 / $154.3 at March 31 | $1,462.9 / $127.8 at December 31 |
| Total investments | $1,393.7 at March 31 | $1,340.8 at December 31 |
Revenue increased about 1.0%, while net income fell about 24.4%. Pre-tax income was $6.7 million versus $7.2 million; income-tax expense rose to $1.8 million from $0.7 million, and the effective tax rate increased to 27.4% from 10.2%. The filing reports no debt outstanding. A $20 million revolving credit facility was undrawn at quarter-end and matures May 5, 2024.
Net cash used in investing activities was $11.0 million, including $25.1 million of fixed-maturity purchases and $3.5 million of other long-term investment purchases. Financing activities used $0.4 million. The annualized yield on average invested assets rose to 4.50% from 4.20%.
Material changes versus the prior comparable period
- Total premiums decreased 2.8% to $38.2 million. First-year premiums increased 24%, but renewal premiums declined, reflecting recent surrenders and expected endowment maturities.
- Net investment income rose 10.2%, primarily due to higher portfolio yields and income from limited partnerships.
- Claims and surrenders increased $1.9 million to $30.3 million. Matured endowment benefits rose 42.9% to $8.8 million; death benefits declined 23.3% to $5.4 million. Total benefits and expenses increased to $49.2 million from $48.2 million.
- Pre-tax income in Life Insurance increased to $6.4 million from $5.9 million. Home Service Insurance pre-tax income declined to $1.3 million from $2.1 million, with higher catastrophic reinsurance costs, lower premiums and higher total insurance benefits cited as factors.
- New ordinary life insurance issued increased 75% to $170.3 million. The company attributed Life Insurance growth in issued coverage largely to a new international whole-life product.
- Other comprehensive income was $21.6 million, compared with $17.2 million. Net unrealized losses on available-for-sale fixed maturities narrowed to $158.2 million at March 31 from $201.7 million at year-end, primarily reflecting market interest-rate changes.
Outlook, risks and unusual items
- Management expects operating cash flow and invested assets to meet anticipated cash needs, but provides no specific earnings or revenue guidance. Interim results are not necessarily indicative of full-year results.
- Management warned that inflation and higher living costs could increase surrenders and lapses or reduce sales, particularly among Home Service customers. Endowment products represented 37% of insurance in force; approximately 17% of endowments in force were expected to mature within five years. Lump-sum elections could create liquidity demands.
- Fixed maturities were 87.0% of cash and invested assets; 98.7% of their fair value was investment grade. The company recorded no credit valuation losses and said it did not intend, nor expect to be required, to sell securities before recovery of amortized cost. Interest-rate and credit-spread movements nevertheless leave substantial unrealized losses and potential market risk.
- Citizens expects to contribute capital to newly operating CICA PR in the foreseeable future to maintain its required premium-to-surplus ratio. CICA International was above its regulatory target capital threshold at quarter-end; a keep-well agreement can require contributions of up to $10 million.
- CICA International had commitments of up to $35.6 million for limited-partnership investments. The company also plans to cease its property insurance operations on June 30, 2023; that business represented less than 1% of consolidated assets and less than 2% of Q1 revenue.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. The filing disclosed no material changes to previously reported risk factors or legal proceedings.
Important facts for investors to verify
- Whether first-year sales growth can offset declining renewal premiums and the effect of future endowment maturities and policyholder surrenders.
- Whether investment income and portfolio yield remain supportive, and how interest rates, credit spreads and any realized investment losses affect earnings and capital.
- The scale and timing of potential capital contributions to CICA PR or CICA International, alongside the $35.6 million limited-partnership commitment.
- The consequences, costs and any material financial effects of the planned property-insurance exit.
- Current borrowing availability and covenant compliance under the revolving facility, which had no borrowings at March 31, 2023.