Citizens, Inc. — FY 2023 Form 10-K
Business and reporting period. Citizens is a life insurer serving U.S. customers and policyholders in more than 75 countries, principally through its Life Insurance and Home Service Insurance segments. This annual report covers the year ended December 31, 2023; the filing also provides unaudited fourth-quarter results. At year-end, the company reported approximately $4.9 billion of direct insurance in force and $1.7 billion of assets.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $240.7 million | $232.5 million |
| Premium revenue | $167.0 million | $173.7 million |
| Net investment income | $69.3 million | $65.4 million |
| Investment-related gains (losses) | $0.8 million | $(10.3) million |
| Income before federal income tax | $26.2 million | $27.4 million |
| Net income | $24.4 million | $26.0 million |
| Diluted Class A EPS | $0.48 | $0.51 |
| Operating cash flow | $22.1 million | $56.9 million |
- Revenue increased 3.5%, while premiums declined 3.8%, reflecting lower renewals and the property-insurance exit; higher investment income and a swing in investment-related results more than offset the premium decline.
- Net investment income rose 6%; consolidated average invested-asset yield was 4.56%, up from 4.40%. Total insurance benefits paid or provided increased to $140.4 million from $133.6 million, mainly due to higher surrenders and matured endowments.
- Life Insurance segment pre-tax income improved to $28.6 million from $25.4 million. Home Service Insurance segment pre-tax income declined to $3.0 million from $6.6 million. Other non-insurance enterprises recorded a $5.5 million pre-tax loss.
- Reported net margin was approximately 10.2% of revenue, versus 11.2% in 2022. The filing does not present this margin as a reported measure.
- Year-end total assets were $1.669 billion; total investments were $1.402 billion and cash and equivalents were $27.0 million. Stockholders’ equity was $172.1 million, up from $127.8 million, including improvement in accumulated other comprehensive loss.
- Fixed-maturity securities were $1.239 billion at fair value against $1.389 billion amortized cost, reflecting a $150.1 million pre-tax net unrealized loss. The company reported no credit valuation allowance on fixed maturities in 2023 or 2022; 99.4% of the portfolio’s fair value was investment grade.
- The company reported no debt outstanding. Operating cash flow fell to $22.1 million, primarily as benefit payments and commission cash outlays increased. The filing says 88% of investments were marketable available-for-sale fixed maturities.
- Fourth-quarter 2023 revenue was $66.8 million and net income was $10.7 million, compared with $67.3 million and $13.7 million, respectively, in fourth-quarter 2022. Fourth-quarter 2023 diluted Class A EPS was $0.21.
Material changes and notable items
- First-year premiums rose 10% overall, including 13% growth in the Life Insurance segment; renewal premiums declined 5%, primarily due to surrenders and maturing endowment policies.
- The company transferred its international in-force business from Bermuda to Puerto Rico in August 2023; new international policies had been issued by the Puerto Rico subsidiary since January. It also merged CNLIC into CICA Domestic in July 2023.
- Citizens ceased property-insurance operations on June 30, 2023. Property premiums fell to $0.8 million from $4.9 million; the company said the exit was immaterial to consolidated operations and did not result in material exit charges.
- Net investment income improved, while investment-related gains and losses remained volatile. The 2023 gain was driven principally by improved limited-partnership valuations; the 2022 loss was largely attributable to those investments.
- Adoption of long-duration targeted improvements (LDTI) was applied retrospectively to periods beginning January 1, 2021. The company says adoption did not affect its key operating metrics, but it materially changed certain previously reported balance-sheet, income-statement and OCI amounts, so prior-period comparisons should use the restated figures in this filing.
Outlook, risks and contingencies
- Management says it expects to meet short- and long-term cash needs through insurance operations and invested assets and believes available operating cash flow and capital resources are adequate. The filing gives no quantitative earnings or revenue guidance.
- Management expects matured endowment benefits to continue increasing over the next few years. About 18% of endowments in force were expected to mature within five years; policyholder choices between lump-sum payouts and deposits remain uncertain.
- International business concentration is significant: foreign policyholders accounted for approximately 70% of consolidated direct premiums. Risks include uncertain foreign insurance-law enforcement, political and currency restrictions, sanctions, and anti-money-laundering compliance. The company relies on independent consultants and states that it has not registered or obtained product approvals in most foreign countries where policies are sold.
- Higher surrenders, inflation-sensitive customers, and interest-rate changes could affect premium retention, liquidity and investment values. CICA Domestic’s rapid sales growth and advance commissions may create statutory-capital and liquidity pressure; management is evaluating reinsurance and financing options.
- Citizens’ Keep Well Agreement may require up to $10 million of capital contributions to CICA International if specified thresholds are not met. The company said CICA International exceeded the relevant capital measures at year-end and no contribution was then required. Domestic subsidiaries exceeded minimum RBC levels; CICA Domestic is subject to a 350% RBC commitment.
- At year-end, approximately 35% of insurance in force was in endowment products. A high volume of lump-sum maturity elections could require investment sales or external financing. The company also has $27.3 million of commitments to fund limited-partnership investments.
- The $20 million Regions Bank revolving credit facility was undrawn at year-end and was scheduled to mature May 5, 2024; management stated its intent to renew it. The filing reports no off-balance-sheet arrangements and no material legal proceedings.
- Auditors issued an unqualified opinion on the financial statements and internal controls. The audit identified assumptions for life-insurance mortality and lapse rates in future-benefit reserves as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether first-year sales growth and the domestic distribution expansion can offset continuing renewal-premium declines and endowment maturities.
- Actual policyholder surrender and maturity-election behavior, and the resulting effect on operating cash flow and liquidity.
- CICA Domestic’s capital needs as advance commissions and new-business volumes grow, including any reinsurance or financing arrangements and the RBC position.
- Whether the Regions Bank credit facility was renewed after its stated May 2024 maturity, and the current terms and availability.
- Developments in foreign regulatory compliance, distributor relationships, currency access and the company’s largest international markets.
- Changes in fixed-income unrealized losses, portfolio credit quality and reinvestment yields, alongside the company’s ability to hold securities through recovery or maturity.