Citizens, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Citizens, Inc. is an insurance holding company serving U.S. and international customers through its Life Insurance and Home Service Insurance segments. Its products include life and endowment policies, final-expense insurance, and limited property coverage. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020; balance-sheet figures are compared with December 31, 2020.
Financial results and condition
- Revenue: $55.5 million, down 0.4% from $55.7 million. Premiums declined 5.5% to $39.0 million; net investment income was broadly unchanged at $15.2 million. Realized investment results improved to a $0.3 million gain from a $1.3 million loss.
- Earnings: Pre-tax loss was $2.7 million versus $2.2 million. Net loss was $3.6 million in both periods; Class A loss per share was $0.07. The filing does not present a headline operating-margin measure.
- Benefits and expenses: Total insurance benefits were essentially flat at $37.1 million. Claims and surrenders rose 15.7% to $30.6 million, including higher death claims and matured endowment benefits; lower reserve increases partly offset this. Total benefits and expenses increased to $58.2 million from $58.0 million.
- Segments: Life Insurance reported a $0.1 million pre-tax loss, versus $2.1 million income; Home Service Insurance reported a $0.8 million loss, improved from $2.1 million. Other Non-Insurance Enterprises recorded a $1.9 million loss, versus $2.2 million.
- Cash flow: Operating cash flow was $1.8 million, down from $14.1 million. Investing activities used $7.4 million, compared with $26.2 million used; financing activities used $9.1 million, principally reflecting the $9.1 million Class B share purchase. Cash and equivalents fell to $19.5 million from $34.1 million.
- Balance sheet and liquidity: Total assets were $1.78 billion; total liabilities were $1.54 billion and stockholders’ equity was $240.8 million, down from $300.9 million at year-end. Investments totaled $1.55 billion, including $1.42 billion of fixed maturities. The company reported no debt at March 31. Its fixed-maturity portfolio had a weighted-average rating of A; annualized portfolio yield was 4.21%, versus 4.31% in Q1 2020.
- Comprehensive loss: Total comprehensive loss was $60.1 million, primarily reflecting $56.5 million of after-tax unrealized investment losses. Net unrealized gains on fixed maturities fell to $88.0 million from $167.9 million, largely as interest rates rose.
- Business production: New insurance issued increased to $95.0 million from $85.7 million; policies issued rose to 7,224 from 5,902. This growth did not offset declining renewal premiums in Life Insurance.
Material changes, outlook, and risks
- Life Insurance premiums fell 9.2%, mainly due to declining in-force business, surrenders, and lower renewal premiums. Management attributed ongoing surrenders partly to an aging block of business, maturities, prior product and distribution changes, and economic conditions in Latin America.
- Death claim benefits increased 35.7%; management cited higher reported claims, including COVID-19-related deaths, and higher average claim amounts. The filing states that the pandemic’s future effects remain highly uncertain, including potential impacts on premiums, distribution, claims, lapses, surrenders, liquidity, and cash flow.
- Management expects cash needs for the next 12 months to be met through insurance operations and invested assets. It reported no material COVID-19 impact on liquidity during the quarter, while noting that extraordinary surrenders and claim levels remain risks.
- On May 5, 2021, after quarter-end, the company entered a three-year, $20 million secured revolving credit facility; it had not borrowed under it as of that date. The company also disclosed up to $68.5 million of commitments to fund private-equity and other investments.
- On April 15, 2021, Citizens agreed to provide up to $10 million under a keep-well agreement if needed to keep CICA Ltd. at the Bermuda regulator’s 120% Target Capital Level. CICA Ltd. exceeded that level at March 31, and no contribution was then required. All insurance subsidiaries exceeded applicable minimum capital requirements.
- The $9.1 million purchase of the Foundation’s Class B shares was paid March 5. Final regulatory approvals were received April 12, when the shares transferred to the company as authorized but unissued shares; the filing states that no party then controlled the company.
- The company said the IRS withholding and reporting matter concerning certain policies sold to non-U.S. persons was closed after returns were processed and associated withholding tax was paid. It disclosed no material new legal or regulatory developments during the quarter.
- Management is evaluating the long-duration insurance accounting standard effective in 2023 and expects it to have a material impact on the consolidated financial statements. No numerical earnings or revenue guidance was provided.
Important facts for investors to verify
- Whether elevated death claims, surrenders, and matured endowments persist, and how these trends affect renewal premiums and operating cash flow.
- Whether new sales and the Florida domestic relaunch can offset Life Insurance in-force and premium declines.
- The effect of interest rates, credit spreads, and reinvestment yields on investment income, unrealized gains, and equity.
- Progress against the $68.5 million investment commitments and whether the keep-well agreement or revolving credit facility is used.
- The eventual impact of the 2023 long-duration insurance accounting standard and any developments in insurance tax, regulatory-capital, or litigation matters.