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How CIA rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

Text kept

32%

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476

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−1,602

words, now 33,607

New in FY2025

Coinsurance Agreement with RGA Reinsurance Company In the second quarter of 2024, CLOA entered into an automatic coinsurance reinsurance agreement with RGA Reinsurance Company ("RGA") in order to provide more capacity for growth in our Domestic Insurance segment.
Under this agreement (the "RGA Agreement"), CLOA elected for RGA to reinsure 50% of its newly written final expense business, which means we cede 50% of direct premiums we receive for our CLOA final expense products that were issued since the date we entered into the RGA Agreement, to RGA.
In return, RGA pays 50% of death benefits paid for these products and also pays CLOA an expense allowance to cover its share of expenses such as commissions.
Investment Related Losses due to BlackRock write-down Investment related gains and losses derive principally from our investments in equity securities and include unrealized gains and losses from market price changes in these equities during the period.
Investment related gains and losses can cause significant fluctuations from period to period and while they are included in our operating revenue, we do not believe they are indicative of our operating results.
As discussed in our 2024 Form 10-K , in December 2024, BlackRock, Inc.
In 2025, BlackRock continued to review the valuation of this fund and reduced the net asset value further.
We had invested in this fund as part of our environmental, social and governance ("ESG") initiatives and although we did not sell this investment, we reported an investment related loss on this investment of $3.3 million in the fourth quarter of 2024 and an additional $5.2 m illion in 2025.
In 2025, the write-down of our BlackRock investment was offset by positive fair value changes in some of our other limited partnership type investments.
Legal Proceedings - Trade Secret Lawsuit for a discussion of the trade secret lawsuit, which impacted our results of operations in 2024 and could negatively impact our cash if we do not succeed in our appeal.
FINANCIAL HIGHLIGHTS Summary Net income before federal income tax increased to $17.5 million in 2025 from $15.0 million in 2024 due to a $10.6 million increase in total revenues offset by a $8.1 million increase in total benefits and expenses.
Total revenues increased due to: • Increase in total premium revenues for the second straight year; • Improvement in investment related gains and losses; • Increase in net investment income due to our diversified investment strategy; and • Increase in other income related to strategic issuance of supplemental contracts.
December 31, 2025 | 10-K 26 CITIZENS, INC.
Total benefits and expenses increased primarily due to: • $6.4 million increase in total insurance benefits paid or provided due to increased matured endowments in our International Insurance segment, partially offset by ◦ a decrease in future policy benefit reserves, and ◦ a decrease in policyholder liability remeasurement loss due to better than expected experience in our Domestic Insurance segment; and • $0.8 million increase in other general expenses due to strategic growth initiatives and increased participation in our equity compensation program in addition to being negatively impacted in 2024 by the accrual of $3.5 million in legal fees awarded to the certain defendants in the trade secret lawsuit.
Financial Condition at December 31, 2025 • Total assets of $1.8 billion. • Total direct insurance in force of $5.4 billion. • Total investments of $1.4 billion; fixed maturity securities comprised 89% of total investments. • No debt. • Diluted earnings per share of Class A common stock of $0.28. • Book value per share of Class A common stock of $4.67. • Adjusted book value per share of Class A common stock of $6.43 1 .
The Factors that Drive our Operating Results We see the following as the primary factors that drive our operating results. • Sales of our products and the premiums we receive from these sales • Investments and the income that they generate • Claims and surrenders • Operating expenses • Actuarial assumptions Sales of our Products.
We believe sales statistics are meaningful to gain an understanding of, among other things, the attractiveness of our products, how expansion of our distribution channels affects our revenue, customer retention and the performance of our business from period-to-period.
Throughout the MD&A, we describe: the actions and initiatives we are taking to increase sales and improve retention, sales performance in each period and as compared to prior year periods, and how we view trends with respect to sales and retention.
One sales factor that is key to our profitability is product mix.
We offer a competitive product mix designed to meet the needs of our specific customer demographics and actively manage new product margins and in-force profitability.
Product mix can have an impact on profitability; when we sell a higher volume of lower-margin products, we may receive more premiums, but may not be as profitable as in periods when we sell a greater percentage of higher-margin products.
Our product mix in both the International Insurance segment and Domestic Insurance segment has been trending towards sales of our newer whole life products, which have a smaller margin than sales of our international endowment products.
We expect this trend to continue due to the anticipated volumes of endowment maturities being replaced by higher volumes of whole life products.
Throughout the MD&A, we refer to " direct" premiums as all premiums received and " net " or " total " premiums as all premiums received less premiums ceded to our reinsurers.
Direct premium revenue increased 5.5% in 2025, to $188.8 million from $178.8 million in 2024.
This increase was driven by sales in our Domestic Insurance segment of CLOA final expense whole life products.
This was the second consecutive year of total premium revenue growth, which prior to 2024, had not increased since 2017. 1 Adjusted book value per of Class A common share is a non-GAAP measure that is calculated by dividing actual Class A common stockholders’ equity, excluding AOCI, by the number of Class A common shares outstanding at the end of the period.
December 31, 2025 | 10-K 27 CITIZENS, INC.
Direct first year premiums increased 16%, to $38.3 million in 2025, compared to $33.0 million in 2024, including 23% growth in our Domestic Insurance segment driven by new products and an increased number of producing agents.
First year premiums also increased in our International Insurance segment in 2025 from 2024 as we continue to work with our distribution partners to expand products and sales.
In 2025, our direct renewal premium revenues increased as a result of robust sales in 2024 in our Domestic Insurance segment, which resulted in a greater volume of policies making renewal premium payments in 2025.
Premium growth was constrained by the high level of surrenders and matured endowments in our International Insurance segment during the last few years, which has lowered the number of policies remaining in force and paying renewal premiums in this segment.
Our net investment income increased from 2024 to 2025.
In 2025, we received a special dividend of $1.7 million from one of our limited partnership investments due to the sale of one of its assets.
Additionally, we began investing in investment grade private placement fixed income securities and structured notes, which led to slightly higher net investment income in 2025.
December 31, 2025 | 10-K 28 CITIZENS, INC.
Payment of policyholder benefits for claims and surrenders is our largest expense and thus key to our profitability.
The three largest components of this expense are reflected in the graphs below.
In 2025, compared to 2024, • death claim benefits decreased due to a combination of lower volume of claims and the RGA Agreement alleviating some of our liability to pay these claims in 2025 as compared to 2024, • surrenders decreased as we continue to focus on retention efforts, and • matured endowments increased as expected due to many of our endowment policies reaching their contractual maturity dates.
The primary reason for the increase in 2025 was our continued investment in the growth of our business and higher costs associated with our equity compensation program as a result of increased stock price and additional participants.

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Gone since FY2024

Continued Elevated Interest Rates To combat the inflation that began as a result of the COVID-19 pandemic, interest rates rose significantly starting in 2022 after being ultra-low for almost a decade.
In just a 16-month span starting in March 2022, the Federal Open Market Committee of the Federal Reserve lifted their key benchmark rate from a near-zero percent to a 22-year high of 5.25% - 5.5%.
Higher interest rates typically reduce the market value of fixed income assets, as the interest payments from existing fixed income assets become less competitive relative to newer higher rate fixed income instruments.
As a life insurer, we strive to match our asset duration to our liability duration.
Since a vast majority of our investment portfolio is long duration fixed maturity securities, our investment portfolio was impacted by these rising rates.
Higher interest rates resulted in an accumulated pre-tax net unrealized loss of $180.3 million on our available-for-sale securities at December 31, 2024 compared to an accumulated pre-tax net unrealized loss of $150.1 million at December 31, 2023.
The credit ratings and default risk of our fixed maturity securities were not significantly impacted by the rise in interest rates and because we intend to hold the long-term investments to maturity, we do not believe that the current unrealized loss is indicative of our long-term financial strength, as we expect the market values to recover prior to the maturity date of most of these investments.
December 31, 2024 | 10-K 28 CITIZENS, INC.
Investment Related Losses due to BlackRock write-down As we have previously discussed, investment related gains and losses derive principally from our investments in equity securities and include unrealized gains and losses from market price changes in these equities during the period.
As evidenced, investment related gains and losses can cause significant fluctuations from period to period and while they are included in our operating revenue, we do not believe they are indicative of our operating results.
We had invested in this fund as part of our environmental, social and governance ("ESG") initiatives and although we did not sell this investment, due to the write-down, we reported an investment related loss on this investment of $3.3 million.
Legal Proceedings - Trade Secret Lawsuit for a discussion of the trade secret lawsuit, which has impacted our results of operations and could negatively impact our cash if we do not succeed in our appeal.
FINANCIAL HIGHLIGHTS Summary Net income before federal income tax decreased to $15.0 million in 2024 from $26.2 million in 2023.
The factors that impacted this change were: • $3.4 million decrease in investment related gains and losses primarily related to the BlackRock write-down; • the accrual of $3.5 million in legal fees awarded to the certain defendants in the trade secret lawsuit; and • total premium revenues increased by $6.3 million in 2024 for the first time in 7 years, but offset by an $11.5 million increase in total insurance benefits paid or provided.
Financial Condition at December 31, 2024 • Total assets of $1.7 billion. • Total direct insurance in force of $5.2 billion. • Total investments of $1.4 billion; fixed maturity securities comprised 88% of total investments. • No debt. • Diluted earnings per share of Class A common stock of $0.29. • Book value per share of Class A common stock of $4.21. • Adjusted book value per share of Class A common stock of $6.14 1 .
The Factors that Drive our Operating Results We see the following as the primary factors that drive our operating results. • Sales (i.e . , premium revenues) • Investments • Claims and surrenders • Operating expenses • Actuarial assumptions 1 Adjusted book value per of Class A common share is a non-GAAP measure that is calculated by dividing actual Class A common stockholders’ equity, excluding AOCI, by the number of Class A common shares outstanding at the end of the period.
December 31, 2024 | 10-K 29 CITIZENS, INC.
Premium revenues and investment income are our two primary sources of income and thus key to our profitability.
We believe sales statistics are meaningful to gaining an understanding of, among other things, the attractiveness of our new products, how expansion of our distribution channels affects our revenue, customer retention and the performance of our business from period to period.
Business , we describe the actions and initiatives that we are taking to increase sales and improve retention, sales performance in each period and as compared to prior periods, and how we view trends with respect to sales and retention.
Over the last couple of years, we began our "white label" program to expand our distribution by expanding CICA Domestic's state licenses, developing new final expense and living benefit products, and filing these new products in multiple states.
As a result, in the past year, we have significantly expanded our domestic distribution in the Life Insurance segment and first year premiums have more than doubled in this segment quarter-over-quarter and year-to-date as compared to 2023.
We incur significant upfront costs in acquiring new business such as this, including the payment of sales commissions and underwriting costs, and thus in order to provide more capacity for growth, we entered into a coinsurance agreement in the second quarter of 2024 with RGA Reinsurance Company ("RGA" and the coinsurance agreement referred to as the "RGA Agreement") as discussed in Part I.
We refer to "direct" premiums as all premiums received and "net" or "total" premiums as all premiums received less premiums ceded to RGA and our other reinsurers.
Because we ceased operations in our property insurance business effective June 30, 2023, the premiums charts and discussions below only reflect life insurance and accident and health insurance ("A&H") premiums results.
Total direct premium revenue increased 6% in 2024, totaling $178.8 million compared to $168.0 million in 2023.
This was the first time our total premium revenue has increased since 2017.
Total direct first year premiums increased 71%, to $33.0 million in 2024, compared to $19.3 million in 2023, including 106% growth in our Life Insurance segment driven by new products and an increased number of producing agents.
In addition to increased first year premiums due to our domestic growth discussed above, first year premiums in our international business increased in 2024 from 2023 as we continue to work with our distribution partners to expand products and sales.
December 31, 2024 | 10-K 30 CITIZENS, INC.
Our renewal premium revenues in 2024 decreased primarily due to the impact of a higher level of surrenders and matured endowments in our international business during the last few years, which has led to a lower number of policies paying renewal premiums.
Our net investment income increased from 2023 to 2024 due primarily to investment income from our limited partnership investments, a growing diversified invested asset base and reinvesting matured or called fixed income maturity securities into a higher interest rate environment.
Payment of policyholder benefits for claims and surrenders is our largest expense and thus also key to our profitability.
The three largest components of this expense are reflected in the graph below.
In 2024, compared to 2023, • death claim benefits increased due to the significant growth in our domestic life in force business as well as a higher average claim amount in our Home Services Insurance segment, • surrenders decreased as we continue to focus on retention efforts, and • matured endowments increased as expected due to many of our endowment policies reaching their contractual maturity dates.
While surrenders and matured endowments do not significantly affect current profitability since reserves are released in a corresponding amount of the surrendered policy or matured endowment benefit payment, they negatively affect future renewal premium revenue and thus have a greater impact to future profitability versus current profitability.
December 31, 2024 | 10-K 31 CITIZENS, INC.
The primary reason for the increase in 2024 was the accrual of $3.5 million in legal fees awarded to certain defendants in the trade secret lawsuit.
To a lesser extent, the increase was also due to our continued investment in the growth of our business and costs incurred as we transitioned to a new CEO.
As discussed above, our domestic growth in the Life Insurance segment has been significantly expanded.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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