10-K: Citizens, Inc. Reports $1.1 Billion in New Insurance Issued, Premium Revenue Grows for First Time Since 2017

Citizens, Inc. announces a significant increase in new insurance issued and a return to premium revenue growth, alongside a decrease in net income due to legal fees and investment losses.

Summary

• Citizens, Inc. reported a decrease in net income before federal income tax to $15.0 million in 2024 from $26.2 million in 2023.
• This decrease was primarily due to a $3.4 million decrease in investment related gains and losses, the accrual of $3.5 million in legal fees, and an $11.5 million increase in total insurance benefits paid or provided.
• Total premium revenue grew by 6% to $178.8 million, marking the first increase since 2017.
• The company issued $1.1 billion in new insurance in 2024, the highest amount ever issued in a year.
• Direct insurance in force reached $5.2 billion.
• First year premiums increased by 71%, driven by new domestic products and an expanded distribution network.
• The company's investment portfolio faced challenges due to rising interest rates, resulting in an accumulated pre-tax net unrealized loss of $180.3 million on available-for-sale securities.
• Operating expenses increased due to legal fees and investments in growth initiatives.
• The company entered into a coinsurance agreement with RGA Reinsurance Company to provide more capacity for growth in its domestic business.
• Citizens is appealing a judgment against it in a trade secret lawsuit.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there are positive aspects such as revenue growth and increased insurance issuance, there are also negative aspects such as decreased net income, investment losses, and legal fees. The overall sentiment is neutral to slightly positive.

Positives

• The company issued the highest amount of insurance ever in a year $1.1 billion.
• Total direct insurance in force reached $5.2 billion.
• Total premium revenue grew for the first time since 2017, increasing by 6% to $178.8 million.
• First year premiums increased by 71% due to new domestic products and an expanded distribution network.
• The company maintained its A.M. Best rating of B++ with a 'Very Strong' balance sheet for CICA Domestic.
• The company introduced a new product in its international markets designed to allow policyholders with maturing endowments to use some or all of the funds to purchase a new life insurance policy.

Negatives

• Net income before federal income tax decreased to $15.0 million in 2024 from $26.2 million in 2023.
• The company accrued $3.5 million in legal fees related to a trade secret lawsuit.
• The company's investment portfolio faced challenges due to rising interest rates, resulting in an accumulated pre-tax net unrealized loss of $180.3 million on available-for-sale securities.
• The company wrote down $3.3 million due to BlackRock write-down of its Global Renewable Power Fund III.

Risks

• A substantial portion of revenue is generated from insurance products sold outside of the United States, which subjects the company to several risks including foreign regulation, foreign currency restrictions, and political instability.
• The company faces significant competition in its international markets.
• The company faces a greater risk of money laundering activity associated with sales derived from residents of certain foreign countries.
• The company's overall financial performance depends upon the accuracy of the assumptions that underlie product pricing.
• The distribution of products through independent consultants and agencies reduces control over sales and distribution.
• Insurance is a highly regulated business and regulations vary from jurisdiction to jurisdiction and may change from time to time.
• Changes in accounting standards may adversely affect reported results of operations and financial condition.
• A ratings downgrade or other negative action by a rating agency could materially affect the company's business, financial condition, and results of operations.
• Changing financial conditions such as market volatility, changes in interest rates, or inflation may adversely affect revenues, results of operations and financial condition.
• Cybersecurity risks, the failure of systems to operate properly and/or the failure to maintain the confidentiality, integrity, and availability of policyholder and claims data, including personal identifying information, could result in a materially adverse effect on business, reputation, financial condition and results of operations.
• The number and location of shareholders may make it difficult to obtain approval of certain corporate actions.
• Applicable insurance laws in the jurisdictions where insurance subsidiaries are domiciled may discourage takeovers and business combinations that shareholders might consider to be in their best interests.

Future Outlook

The company aims to continue premium growth within the Home Service Insurance segment by focusing on direct independent agent-to-consumer sales and expects continued increases in matured endowment benefits over the next few years as more of these contracts expire.

Management Comments

• As a result of these efforts over the last few years, in 2024, our total premium revenue grew for the first time since 2017.
• 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.
• We continue to work on managing controllable operating expenses while investing in growth initiatives.

Industry Context

The life insurance industry has faced numerous disruptions, including profitability challenges driven by low interest rates, a global pandemic, high inflation followed by a rapid rise in interest rates, volatility in equity markets, and geopolitical uncertainty.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• However, it mentions that Citizens competes with other insurance carriers specializing in final expense insurance and seeks to compete effectively through policyholder service, price, product design, and distribution efforts.
• The company also competes with other life insurance companies and financial institutions that offer insurance products internationally.
• The company believes that issuing U.S. dollar-denominated products is a key competitive advantage for its international business.

Legal Proceedings

• In the first quarter of 2024, a jury trial was held in the trade secret lawsuit.
• The jury found that Citizens should pay Alexis Delgado and Carlos Nalsen Landa, former independent consultants, approximately $1.3 million for money had and received.
• The trial court awarded defendants Michael P. Buchweitz and Randall Riley approximately $3.5 million of their legal fees incurred during the trade secret lawsuit.
• The company has appealed the judgment against it and the appeal is currently pending in the Court of Appeals, Third District of Texas.

Stakeholder Impact

• Policyholders may be impacted by the company's ability to provide benefits due to financial challenges.
• Shareholders may be impacted by the decrease in net income and the legal fees.
• Employees may be impacted by the company's cost management efforts.

Next Steps

• The company intends to continue premium growth within the Home Service Insurance segment by focusing on direct independent agent-to-consumer sales.
• The company is appealing a judgment against it in a trade secret lawsuit.
• The company will continue to monitor surrenders and early withdrawals and focus on retention initiatives and efforts to retain cash when policyholders surrender their policies.

Key Dates