CITIZENS, INC. (Form: 10-Q, Received: 11/04/2021 14:35:03)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

COMMISSION FILE NUMBER: 000-16509


CITIZENS, INC.
(Exact name of registrant as specified in its charter)


Colorado			84-0755371
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

11815 Alterra Pkwy, Floor 15, Austin, TX 78758

(Current Address)

Registrant's telephone number, including area code: (512) 837-7100


Securities registered pursuant to Section 12(b) of the Act

Class A Common Stock	CIA	NYSE
(Title of each class)	(Trading symbol(s))	(Name of each exchange on which registered)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☒

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

As of October 29, 2021, the Registrant had 49,789,339 shares of Class A common stock outstanding and 0 shares of Class B common stock outstanding.

THIS PAGE INTENTIONALLY LEFT BLANK

TABLE OF CONTENTS


			Page Number
Part I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets, September 30, 2021 (Unaudited) and December 31, 2020	2

		Consolidated Statements of Operations and Comprehensive Income (Loss), Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	4

		Consolidated Statements of Stockholders' Equity, Nine Months Ended September 30, 2021 and 2020 (Unaudited)	5

		Consolidated Statements of Cash Flows, Nine Months Ended September 30, 2021 and 2020 (Unaudited)	7

		Notes to Consolidated Financial Statements (Unaudited)	9

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52

	Item 4.	Controls and Procedures	52

Part II. OTHER INFORMATION

	Item 1.	Legal Proceedings	54

	Item 1A.	Risk Factors	55

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

	Item 3.	Defaults Upon Senior Securities	55

	Item 4.	Mine Safety Disclosures	55

	Item 5.	Other Information	55

	Item 6.	Exhibits	56

September 30, 2021 | 10-Q 1

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets




(In thousands)	September 30, 2021		December 31, 2020
Assets	(Unaudited)
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost: $1,324,307 and $1,321,487 in 2021 and 2020, respectively)	$	1,456,694	1,489,383

Equity securities, at fair value	22,335		22,102

Policy loans	80,102		83,318

Real estate held-for-sale	—		2,571
Other long-term investments (portion measured at fair value $32,651 and $11,923 in 2021 and 2020, respectively; less allowance for losses of $11 in 2021 and 2020)	34,013		27,294

Total investments	1,593,144		1,624,668
Cash and cash equivalents	30,087		34,131
Accrued investment income	15,625		16,137
Receivable for securities	10,000		—
Reinsurance recoverable	13,724		5,753
Deferred policy acquisition costs	115,093		104,913
Cost of insurance acquired	10,865		11,541
Goodwill and other intangible assets	13,567		13,570


Property and equipment, net	14,524		16,312
Due premiums	9,369		11,309

Other assets (less allowance for losses of $223 and $297 in 2021 and 2020, respectively)	5,500		5,086
Total assets	$	1,831,498	1,843,420

See accompanying Notes to Consolidated Financial Statements.

September 30, 2021 | 10-Q 2

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets, Continued



(In thousands, except share amounts)	September 30, 2021		December 31, 2020
Liabilities and Stockholders' Equity	(Unaudited)
Liabilities:
Policy liabilities:
Future policy benefit reserves:
Life insurance	$	1,266,745	1,246,423
Annuities	83,223		78,304
Accident and health	779		761
Dividend accumulations	36,588		33,336
Premiums paid in advance	42,132		40,605
Policy claims payable	23,478		13,206
Other policyholders' funds	28,064		22,447
Total policy liabilities	1,481,009		1,435,082
Commissions payable	2,197		2,572
Current federal income tax payable	45,771		43,916
Deferred federal income tax payable	9,162		9,564
Payable for securities in process of settlement	560		5,265
Other liabilities	27,768		46,076
Total liabilities	1,566,467		1,542,475
Commitments and contingencies (Note 7)
Stockholders' Equity:
Common stock:
Class A, no par value, 100,000,000 shares authorized, 52,765,837 and 52,654,016 shares issued and outstanding in 2021 and 2020, respectively, including shares in treasury of 3,135,738 in 2021 and 2020	263,160		262,869
Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2021 and 2020, including shares in treasury of 1,001,714 in 2021	3,184		3,184
Accumulated deficit	(83,702)		(82,352)
Accumulated other comprehensive income:
Net unrealized gains (losses) on fixed maturity securities, net of tax	102,490		128,255
Treasury stock, at cost	(20,101)		(11,011)
Total stockholders' equity	265,031		300,945
Total liabilities and stockholders' equity	$	1,831,498	1,843,420

See accompanying Notes to Consolidated Financial Statements.

September 30, 2021 | 10-Q 3

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)


	Three Months Ended September 30,			Nine Months Ended September 30,
(In thousands, except per share amounts)	2021		2020	2021	2020
Revenues:
Premiums:
Life insurance	$	43,239	42,732	122,319	122,863
Accident and health insurance	311		236	945	745
Property insurance	(223)		1,140	1,921	3,313
Net investment income	15,454		14,997	46,018	45,081
Realized investment gains (losses), net	2,126		527	7,277	669
Other income	677		193	2,145	1,217
Total revenues	61,584		59,825	180,625	173,888
Benefits and Expenses:
Insurance benefits paid or provided:
Claims and surrenders	31,816		32,958	91,701	87,161
Increase in future policy benefit reserves	10,888		4,158	22,407	21,866
Policyholders' dividends	1,650		1,450	4,431	4,011
Total insurance benefits paid or provided	44,354		38,566	118,539	113,038
Commissions	9,115		7,712	26,073	22,279
Other general expenses	10,542		19,391	33,427	42,003
Capitalization of deferred policy acquisition costs	(6,026)		(4,892)	(16,798)	(13,632)
Amortization of deferred policy acquisition costs	6,043		6,760	18,300	18,940
Amortization of cost of insurance acquired	283		459	959	1,228
Total benefits and expenses	64,311		67,996	180,500	183,856
Income (loss) before federal income tax	(2,727)		(8,171)	125	(9,968)
Federal income tax expense (benefit)	72		(256)	1,475	2,558
Net income (loss)	(2,799)		(7,915)	(1,350)	(12,526)
Per Share Amounts:
Basic and diluted earnings (losses) per share of Class A common stock	(0.06)		(0.16)	(0.03)	(0.25)
Basic and diluted earnings (losses) per share of Class B common stock	—		(0.07)	(0.01)	(0.12)
Other Comprehensive Income (Loss):
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) arising during period	(1,564)		15,128	(25,706)	52,707
Reclassification adjustment for losses (gains) included in net income (loss)	(102)		2	(91)	46
Unrealized gains (losses) on fixed maturity securities, net	(1,666)		15,130	(25,797)	52,753
Income tax expense (benefit) on unrealized gains (losses) on fixed maturity securities	(271)		1,020	(32)	4,067
Other comprehensive income (loss)	(1,395)		14,110	(25,765)	48,686
Total comprehensive income (loss)	$	(4,194)	6,195	(27,115)	36,160

See accompanying Notes to Consolidated Financial Statements.

September 30, 2021 | 10-Q 4

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

(Unaudited)




	Common Stock			Accumulated deficit	Accumulated other comprehensive income (loss)	Treasury stock	Total Stock-holders' equity
(In thousands)	Class A		Class B

Balance at December 31, 2020	$	262,869	3,184	(82,352)	128,255	(11,011)	300,945
Comprehensive income (loss):
Net income (loss)	—		—	(3,573)	—	—	(3,573)
Unrealized investment gains (losses), net	—		—	—	(56,518)	—	(56,518)
Total comprehensive income (loss)	—		—	(3,573)	(56,518)	—	(60,091)
Stock-based compensation	(14)		—	—	—	—	(14)
Balance at March 31, 2021	262,855		3,184	(85,925)	71,737	(11,011)	240,840
Comprehensive income (loss):
Net income (loss)	—		—	5,022	—	—	5,022
Unrealized investment gains (losses), net	—		—	—	32,148	—	32,148
Total comprehensive income (loss)	—		—	5,022	32,148	—	37,170
Acquisition of treasury stock	—		—	—	—	(9,090)	(9,090)
Stock-based compensation	205		—	—	—	—	205
Balance at June 30, 2021	263,060		3,184	(80,903)	103,885	(20,101)	269,125
Comprehensive income (loss):
Net income (loss)	—		—	(2,799)	—	—	(2,799)
Unrealized investment gains (losses), net	—		—	—	(1,395)	—	(1,395)
Total comprehensive income (loss)	—		—	(2,799)	(1,395)	—	(4,194)
Stock-based compensation	100		—	—	—	—	100
Balance at September 30, 2021	$	263,160	3,184	(83,702)	102,490	(20,101)	265,031

See accompanying Notes to Consolidated Financial Statements.

September 30, 2021 | 10-Q 5

Table of Contents




CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity, Continued
(Unaudited)

	Common Stock			Accumulated deficit	Accumulated other comprehensive income (loss)	Treasury stock	Total Stock-holders' equity
(In thousands)	Class A		Class B

Balance at December 31, 2019	$	261,515	3,184	(70,969)	77,117	(11,011)	259,836
Accounting standards adopted January 1, 2020	—		—	(395)	—	—	(395)
Comprehensive income (loss):
Net income (loss)	—		—	(3,584)	—	—	(3,584)
Unrealized investment gains (losses), net	—		—	—	(40,070)	—	(40,070)
Total comprehensive income (loss)	—		—	(3,584)	(40,070)	—	(43,654)
Stock-based compensation	(53)		—	—	—	—	(53)
Balance at March 31, 2020	261,462		3,184	(74,948)	37,047	(11,011)	215,734
Comprehensive income (loss):
Net income (loss)	—		—	(1,027)	—	—	(1,027)
Unrealized investment gains (losses), net	—		—	—	74,647	—	74,647
Total comprehensive income (loss)	—		—	(1,027)	74,647	—	73,620
Stock-based compensation	439		—	—	—	—	439
Balance at June 30, 2020	261,901		3,184	(75,975)	111,694	(11,011)	289,793
Comprehensive income (loss):
Net income (loss)	—		—	(7,915)	—	—	(7,915)
Unrealized investment gains (losses), net	—		—	—	14,110	—	14,110
Total comprehensive income (loss)	—		—	(7,915)	14,110	—	6,195
Stock-based compensation	766		—	—	—	—	766
Balance at September 30, 2020	$	262,667	3,184	(83,890)	125,804	(11,011)	296,754

See accompanying Notes to Consolidated Financial Statements.

September 30, 2021 | 10-Q 6

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


Nine Months Ended September 30, (In thousands)	2021		2020
Cash flows from operating activities:
Net income (loss)	$	(1,350)	(12,526)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment (gains) losses on sale of investments and other assets	(7,277)		(669)
Net deferred policy acquisition costs	1,502		5,308
Amortization of cost of insurance acquired	959		1,228
Depreciation	954		771
Amortization of premiums and discounts on investments	4,065		6,616
Stock-based compensation	406		2,020
Deferred federal income tax expense (benefit)	(370)		(386)
Change in:
Accrued investment income	512		1,133
Reinsurance recoverable	(7,971)		(8,274)
Due premiums	1,940		1,434
Future policy benefit reserves	22,292		21,654
Other policyholders' liabilities	20,668		15,364
Federal income tax payable	1,855		3,165
Commissions payable and other liabilities	(14,342)		145
Other, net	(73)		(2,967)
Net cash provided by (used in) operating activities	23,770		34,016
Cash flows from investing activities:
Purchases of fixed maturity securities, available-for-sale	(62,809)		(187,267)
Sales of fixed maturity securities, available-for-sale	8,238		17,524
Maturities and calls of fixed maturity securities, available-for-sale	40,395		154,873
Purchases of equity securities	—		(4,473)
Principal payments on mortgage loans	7		9
Funding of mortgage loans	(1,000)		—
(Increase) decrease in policy loans, net	3,216		(1,957)
Sales of other long-term investments and real estate	20,893		—
Purchases of other long-term investments	(27,514)		(19,115)
Sales of property and equipment	14		—
Purchases of property and equipment	(847)		(124)
Maturities of short-term investments	—		1,300



Net cash provided by (used in) investing activities	(19,407)		(39,230)

See accompanying Notes to Consolidated Financial Statements.

September 30, 2021 | 10-Q 7

Table of Contents


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)


Nine Months Ended September 30, (In thousands)	2021		2020
Cash flows from financing activities:
Annuity deposits	$	6,901	5,542
Annuity withdrawals	(5,855)		(3,403)
Acquisition of treasury stock	(9,090)		—
Other	(363)		(869)
Net cash provided by (used in) financing activities	(8,407)		1,270
Net increase (decrease) in cash and cash equivalents	(4,044)		(3,944)
Cash and cash equivalents at beginning of year	34,131		46,205
Cash and cash equivalents at end of period	$	30,087	42,261

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the nine months ended September 30, 2021 and 2020, various fixed maturity issuers exchanged securities with book values of $10.9 million and $5.3 million, respectively, for securities of equal value.

The Company had $9.4 million net unsettled security trades at September 30, 2021 and $6.0 million at September 30, 2020.

The Company recognized right-of-use assets of $12.0 million in exchange for new operating lease liabilities during the nine months ended September 30, 2020. None were recognized during the nine months ended September 30, 2021.

See accompanying Notes to Consolidated Financial Statements.

September 30, 2021 | 10-Q 8

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

(1) FINANCIAL STATEMENTS

BASIS OF PRESENTATION AND CONSOLIDATION

The consolidated financial statements include the accounts and operations of Citizens, Inc. ("Citizens" or the "Company"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA"), CICA Life Ltd. ("CICA Ltd."), Citizens National Life Insurance Company ("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC") and Computing Technology, Inc. ("CTI"). All significant inter-company accounts and transactions have been eliminated. Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company", "we", "us" or "our".

The consolidated balance sheets as of September 30, 2021, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three and nine months ended September 30, 2021 and September 30, 2020 and the consolidated statements of cash flows for the nine months ended September 30, 2021 and September 30, 2020 have been prepared by the Company without audit and are not subject to audit. In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at September 30, 2021 and for comparative periods have been made. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission ("SEC"). Accordingly, the consolidated financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 ("Form 10-K"). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Our Life Insurance segment operates through CICA Ltd., CICA and CNLIC. Our international life insurance business, which operates through CICA Ltd., issues U.S. dollar-denominated endowment contracts internationally, which are principally accumulation contracts that incorporate an element of life insurance protection and ordinary whole life insurance in U.S. dollar-denominated amounts sold to non-U.S. residents. These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional increasing or decreasing coverage and annuity benefits to enhance accumulations. Our domestic life insurance business, which operates through CICA and CNLIC, primarily focused on living needs and provided benefits toward accumulating financial benefits for the policyowners throughout the Midwest and southern U.S. until they ceased most domestic sales beginning January 1, 2017. We have recently developed a whole life insurance product and have begun selling this product in Florida in 2021.

Our Home Service Insurance segment operates through our subsidiaries SPLIC, MGLIC and SPFIC, and focuses on the life insurance needs of the middle- and lower-income markets, primarily in Louisiana, Mississippi and Arkansas. Our products in this segment consist primarily of small face amount ordinary whole life, industrial life and pre-need policies, which are designed to fund final expenses for the insured, primarily consisting of funeral and burial costs as well as property insurance policies, which are named peril property policies covering dwelling and contents.

CTI provides data processing systems and services to the Company.

We converted the small block of ordinary whole life policies of CNLIC from a legacy platform to our new actuarial valuation software solution which provides enhanced modeling capabilities as of April 1, 2021. The impact of this system conversion reflected in the accompanying consolidated financial statements as of and for the nine months ended September 30, 2021 was an increase to pretax income of $0.7 million consisting of a reduced increase in future policy benefit reserves of $0.8 million and increased amortization of deferred policy acquisition costs of $0.1 million.

September 30, 2021 | 10-Q 9

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include those used in the evaluation of credit allowances on fixed maturity securities, actuarially determined assets and liabilities and assumptions, tests of goodwill impairment and valuation allowance on deferred tax assets. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the consolidated financial statements.

SIGNIFICANT ACCOUNTING POLICIES

For a description of our significant accounting policies, see Part IV, Item 15, Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements included in our Form 10-K, which should be read in conjunction with these accompanying consolidated financial statements.

(2) ACCOUNTING PRONOUNCEMENTS

ACCOUNTING STANDARDS RECENTLY ADOPTED

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326), with the main objective to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases of expected credit losses that have taken place during the period. Credit losses on available-for-sale ("AFS") fixed maturity securities should be measured in a manner similar to current U.S. GAAP; however, the credit losses are recorded through an allowance for credit losses rather than as a write-down. This approach is an improvement to prior U.S. GAAP because an entity will be able to record reversals of credit losses (in situations in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement recognition of credit losses with the reporting period in which changes occur. Prior U.S. GAAP prohibited reflecting those improvements in current-period earnings. The Company adopted this standard effective January 1, 2020 using the modified retrospective approach. The adoption resulted in an increase in accumulated deficit of $0.4 million related to agents' debit balance collectability.

September 30, 2021 | 10-Q 10

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

ACCOUNTING STANDARDS NOT YET ADOPTED

In August 2018, the FASB issued ASU No. 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. This ASU amends four key areas of the accounting and impacts disclosures for long-duration insurance and investment contracts:

•Requires updated assumptions for liability measurement. Assumptions used to measure the liability for traditional insurance contracts, which are typically determined at contract inception, will now be reviewed at least annually, and, if there is a change, updated, with the effect recorded in net income;

•Standardizes the liability discount rate. The liability discount rate will be a market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income;

•Provides greater consistency in measurement of market risk benefits. The two previous measurement models have been reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk;

•Simplifies amortization of deferred acquisition costs ("DAC"). Previous earnings-based amortization methods have been replaced with a more level amortization basis; and

•Requires enhanced disclosures. The new disclosures include rollforwards and information about significant assumptions and the effects of changes in those assumptions.

For calendar-year public companies, the changes will be effective on January 1, 2023, however, early adoption is permitted. While it is not possible to estimate the expected impact of adoption at this time, the Company believes there is a reasonable possibility that implementation of ASU No. 2018-12 may result in a material impact on our consolidated statements of stockholders' equity and future earnings patterns.

No other new accounting pronouncement issued or effective during the year had, or is expected to have, a material impact on our consolidated financial statements.

(3) SEGMENT INFORMATION

The Company has two reportable segments: Life Insurance and Home Service Insurance.

Our Life Insurance segment primarily issues endowment contracts, which are principally accumulation contracts that incorporate an element of life insurance protection and ordinary whole life insurance, to non-U.S. residents through CICA Ltd. These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional coverage and annuity benefits to enhance accumulations. CICA and CNLIC issued ordinary whole life, credit life and disability and accident and health related policies, throughout the Midwest and southern U.S. until they ceased most domestic sales beginning January 1, 2017. We restarted marketing domestically in Florida in 2021.

Our Home Service Insurance segment operates through our subsidiaries SPLIC, MGLIC and SPFIC, and focuses on the life insurance needs of the middle- and lower-income markets in Louisiana, Mississippi and Arkansas. Our policies are sold and serviced through funeral homes and independent agents who sell policies, collect premiums and service policyholders. To a lesser extent, our Home Service Insurance segment also sells property insurance policies in Louisiana.

The Company also operates other non-insurance portions of the Company ("Other Non-Insurance Enterprises"), which primarily include the Company’s IT and Corporate-support functions that are included in the tables presented. The Company's Other Non-Insurance Enterprises are the only reportable difference between segments and consolidated operations.

September 30, 2021 | 10-Q 11

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

The accounting policies of the reportable segments and Other Non-Insurance Enterprises are presented in accordance with U.S. GAAP and are the same as those used in the preparation of the consolidated financial statements. The Company evaluates profit and loss performance based on U.S. GAAP income before federal income taxes for its two reportable segments.


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Three Months Ended September 30, 2021
(In thousands)

Revenues:
Premiums	$	32,198	11,129	—	43,327
Net investment income	11,991		3,238	225	15,454
Realized investment gains (losses), net	1,205		(36)	957	2,126
Other income	676		1	—	677
Total revenues	46,070		14,332	1,182	61,584
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	22,565		9,251	—	31,816
Increase in future policy benefit reserves	9,369		1,519	—	10,888
Policyholders' dividends	1,638		12	—	1,650
Total insurance benefits paid or provided	33,572		10,782	—	44,354
Commissions	4,854		4,261	—	9,115
Other general expenses	4,900		4,146	1,496	10,542
Capitalization of deferred policy acquisition costs	(4,201)		(1,825)	—	(6,026)
Amortization of deferred policy acquisition costs	5,191		852	—	6,043
Amortization of cost of insurance acquired	68		215	—	283
Total benefits and expenses	44,384		18,431	1,496	64,311
Income (loss) before federal income tax expense	$	1,686	(4,099)	(314)	(2,727)

September 30, 2021 | 10-Q 12

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Nine Months Ended September 30, 2021
(In thousands)

Revenues:
Premiums	$	89,399	35,786	—	125,185
Net investment income	35,468		9,826	724	46,018
Realized investment gains (losses), net	5,741		393	1,143	7,277
Other income	2,142		3	—	2,145
Total revenues	132,750		46,008	1,867	180,625
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	69,366		22,335	—	91,701
Increase in future policy benefit reserves	17,081		5,326	—	22,407
Policyholders' dividends	4,400		31	—	4,431
Total insurance benefits paid or provided	90,847		27,692	—	118,539
Commissions	13,483		12,590	—	26,073
Other general expenses	15,273		12,024	6,130	33,427
Capitalization of deferred policy acquisition costs	(11,578)		(5,220)	—	(16,798)
Amortization of deferred policy acquisition costs	15,739		2,561	—	18,300
Amortization of cost of insurance acquired	279		680	—	959
Total benefits and expenses	124,043		50,327	6,130	180,500
Income (loss) before federal income tax expense	$	8,707	(4,319)	(4,263)	125

September 30, 2021 | 10-Q 13

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Three Months Ended September 30, 2020
(In thousands)

Revenues:
Premiums	$	32,265	11,843	—	44,108
Net investment income	11,507		3,200	290	14,997
Realized investment gains (losses), net	133		388	6	527
Other income	189		1	3	193
Total revenues	44,094		15,432	299	59,825
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	25,023		7,935	—	32,958
Increase in future policy benefit reserves	3,274		884	—	4,158
Policyholders' dividends	1,443		7	—	1,450
Total insurance benefits paid or provided	29,740		8,826	—	38,566
Commissions	4,140		3,572	—	7,712
Other general expenses	1,915		4,524	12,952	19,391
Capitalization of deferred policy acquisition costs	(3,512)		(1,380)	—	(4,892)
Amortization of deferred policy acquisition costs	6,190		570	—	6,760
Amortization of cost of insurance acquired	113		346	—	459
Total benefits and expenses	38,586		16,458	12,952	67,996
Income (loss) before federal income tax expense	$	5,508	(1,026)	(12,653)	(8,171)

September 30, 2021 | 10-Q 14

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


	Life Insurance		Home Service Insurance	Other Non-Insurance Enterprises	Consolidated
Nine Months Ended September 30, 2020
(In thousands)

Revenues:
Premiums	$	92,146	34,775	—	126,921
Net investment income	34,332		9,788	961	45,081
Realized investment gains (losses), net	1,259		(405)	(185)	669
Other income	1,195		19	3	1,217
Total revenues	128,932		44,177	779	173,888
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	66,071		21,090	—	87,161
Increase in future policy benefit reserves	18,804		3,062	—	21,866
Policyholders' dividends	3,987		24	—	4,011
Total insurance benefits paid or provided	88,862		24,176	—	113,038
Commissions	11,912		10,367	—	22,279
Other general expenses	11,309		13,431	17,263	42,003
Capitalization of deferred policy acquisition costs	(10,149)		(3,483)	—	(13,632)
Amortization of deferred policy acquisition costs	16,927		2,013	—	18,940
Amortization of cost of insurance acquired	358		870	—	1,228
Total benefits and expenses	119,219		47,374	17,263	183,856
Income (loss) before federal income tax expense	$	9,713	(3,197)	(16,484)	(9,968)

September 30, 2021 | 10-Q 15

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

(4) STOCKHOLDERS' EQUITY AND RESTRICTIONS

EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted earnings (loss) per share.



Three Months Ended September 30,	2021		2020
(In thousands, except per share amounts)

Basic and diluted earnings (loss) per share:
Numerator:
Net income (loss)	$	(2,799)	(7,915)
Net income (loss) allocated to Class A common stock	$	(2,799)	(7,836)
Net income (loss) allocated to Class B common stock	—		(79)
Net income (loss)	$	(2,799)	(7,915)

Denominator:
Weighted average shares of Class A outstanding - basic	49,630		49,437
Weighted average shares of Class A outstanding - diluted	50,263		49,832
Weighted average shares of Class B outstanding - basic and diluted	—		1,002
Basic and diluted earnings (loss) per share of Class A common stock	$	(0.06)	(0.16)
Basic and diluted earnings (loss) per share of Class B common stock	—		(0.07)


Nine Months Ended September 30,	2021		2020
(In thousands, except per share amounts)
Basic and diluted earnings (loss) per share:
Numerator:
Net income (loss)	$	(1,350)	(12,526)
Net income (loss) allocated to Class A common stock	$	(1,345)	(12,401)
Net income (loss) allocated to Class B common stock	(5)		(125)
Net income (loss)	$	(1,350)	(12,526)

Denominator:
Weighted average shares of Class A outstanding - basic	49,594		49,365
Weighted average shares of Class A outstanding - diluted	50,226		49,760
Weighted average shares of Class B outstanding - basic and diluted	401		1,002
Basic and diluted earnings (loss) per share of Class A common stock	$	(0.03)	(0.25)
Basic and diluted earnings (loss) per share of Class B common stock	(0.01)		(0.12)

CAPITAL AND SURPLUS

Each of our regulated insurance subsidiaries is required to meet stipulated regulatory capital requirements. These include capital requirements imposed by the U.S. National Association of Insurance Commissioners ("NAIC") and the Bermuda Monetary Authority ("BMA"). All insurance subsidiaries exceeded the minimum capital requirements at September 30, 2021.

September 30, 2021 | 10-Q 16

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation or excess risk, the BMA has established a threshold capital level (termed the Target Capital Level ("TCL")), which is set at 120% of a company’s enhanced capital requirement. The TCL serves as an early warning tool for the BMA. As of September 30, 2021, CICA Ltd. was above the TCL threshold. At the request of the BMA, on April 15, 2021, Citizens and CICA Ltd. entered into a Keep Well Agreement. The Keep Well Agreement requires Citizens to contribute up to $10 million in capital to CICA Ltd. as necessary to ensure that CICA Ltd. has a minimum capital level of 120% (equal to the TCL). Since CICA Ltd.’s capital level currently exceeds 120%, Citizens is not currently required to make a capital contribution.

(5) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled 89.7% of total cash and invested assets at September 30, 2021, as shown below.


Carrying Value (In thousands, except for %)	September 30, 2021				December 31, 2020
	Amount		%		Amount	%

Cash and invested assets:
Fixed maturity securities	$	1,456,694	89.7	%	1,489,383	89.8	%
Equity securities	22,335		1.4	%	22,102	1.3	%
Policy loans	80,102		4.9	%	83,318	5.0	%
Real estate and other long-term investments	34,013		2.1	%	29,865	1.8	%

Cash and cash equivalents	30,087		1.9	%	34,131	2.1	%

Total cash and invested assets	$	1,623,231	100.0	%	1,658,799	100.0	%

The following tables represent the amortized cost, gross unrealized gains and losses and fair value of fixed maturity securities as of the dates indicated.


	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
September 30, 2021
(In thousands)

Fixed maturity securities:
Available-for-sale:
U.S. Treasury securities	$	7,257	1,078	—	8,335
U.S. Government-sponsored enterprises	3,470		1,045	—	4,515
States and political subdivisions	353,653		29,186	517	382,322
Corporate:
Financial	203,997		22,774	120	226,651
Consumer	212,805		23,842	787	235,860
Energy	79,442		8,147	89	87,500
All other	300,594		31,884	1,147	331,331

Residential mortgage-backed	117,845		16,681	4	134,522
Asset-backed	45,143		413	10	45,546
Foreign governments	101		11	—	112
Total fixed maturity securities	$	1,324,307	135,061	2,674	1,456,694

September 30, 2021 | 10-Q 17

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
December 31, 2020
(In thousands)

Fixed maturity securities:
Available-for-sale:
U.S. Treasury securities	$	9,529	1,797	—	11,326
U.S. Government-sponsored enterprises	3,490		1,301	—	4,791
States and political subdivisions	377,462		32,751	548	409,665
Corporate:
Financial	204,160		31,000	13	235,147
Consumer	196,648		30,116	245	226,519
Energy	81,223		8,174	536	88,861
All other	284,209		42,554	82	326,681
Commercial mortgage-backed	225		—	4	221
Residential mortgage-backed	118,144		21,819	—	139,963
Asset-backed	46,295		278	482	46,091
Foreign governments	102		16	—	118
Total fixed maturity securities	$	1,321,487	169,806	1,910	1,489,383

Most of the Company's equity securities are diversified stock and bond mutual funds.


Fair Value (In thousands)	September 30, 2021		December 31, 2020

Equity securities:
Stock mutual funds	$	3,407	3,174
Bond mutual funds	12,512		12,354
Common stock	1,072		1,143
Non-redeemable preferred stock	272		281
Non-redeemable preferred stock fund	5,072		5,150
Total equity securities	$	22,335	22,102

VALUATION OF INVESTMENTS

Available-for-sale securities are reported in the consolidated financial statements at fair value. Equity securities are measured at fair value with the change in fair value recorded through net income. The Company recognized net realized losses of $0.4 million and net realized gains of $0.2 million on equity securities held for the three and nine months ended September 30, 2021 and gains of $0.4 million and $0.6 million for the same periods ended September 30, 2020.

The Company considers several factors in its review and evaluation of individual investments, using the process described in Part IV, Item 15, Note 2. Investments in the notes to the consolidated financial statements of our Form 10-K to determine whether a credit loss impairment exists. For the three and nine months ended September 30, 2021 and 2020, the Company recorded no credit valuation losses on fixed maturity securities.

September 30, 2021 | 10-Q 18

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

The following tables present the fair values and gross unrealized losses of fixed maturity securities that are not deemed to have credit losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position at September 30, 2021 and December 31, 2020.


September 30, 2021	Less than 12 months				Greater than 12 months				Total
(In thousands, except for # of securities)	Fair Value		Unrealized Losses	# of Securities	Fair Value		Unrealized Losses	# of Securities	Fair Value		Unrealized Losses	# of Securities

Fixed maturity securities:
Available-for-sale securities:
U.S. Treasury securities	$	72	—	2	$	—	—	—	$	72	—	2
States and political subdivisions	22,636		517	17	—		—	—	22,636		517	17
Corporate:
Financial	3,264		24	7	1,219		96	1	4,483		120	8
Consumer	26,204		651	28	2,410		136	1	28,614		787	29
Energy	6,778		89	8	—		—	—	6,778		89	8
All Other	32,946		1,147	29	—		—	—	32,946		1,147	29

Residential mortgage-backed	1,009		4	5	—		—	—	1,009		4	5
Asset-backed	9,215		9	14	664		1	1	9,879		10	15

Total fixed maturity securities	$	102,124	2,441	110	$	4,293	233	3	$	106,417	2,674	113


December 31, 2020	Less than 12 months				Greater than 12 months				Total
(In thousands, except for # of securities)	Fair Value		Unrealized Losses	# of Securities	Fair Value		Unrealized Losses	# of Securities	Fair Value		Unrealized Losses	# of Securities

Fixed maturity securities:
Available-for-sale securities:

States and political subdivisions	$	32,487	548	27	$	—	—	—	$	32,487	548	27
Corporate:
Financial	1,308		13	1	—		—	—	1,308		13	1
Consumer	10,740		230	5	1,667		15	1	12,407		245	6
Energy	6,350		536	8	—		—	—	6,350		536	8
All Other	9,418		82	11	—		—	—	9,418		82	11
Commercial mortgage-backed	221		4	1	—		—	—	221		4	1
Residential mortgage-backed	83		—	1	—		—	—	83		—	1
Asset-backed	26,353		481	26	994		1	1	27,347		482	27
Total fixed maturity securities	$	86,960	1,894	80	$	2,661	16	2	$	89,621	1,910	82

In each category of our fixed maturity securities described above, we do not intend to sell our investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

We did not recognize credit losses on securities with unrealized losses that were due to interest rate sensitivity and changes in credit spreads. We believe that fluctuations caused by movements in interest rates and credit spreads

September 30, 2021 | 10-Q 19

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

have little bearing on the recoverability of our investments. The fair value is expected to recover as the securities approach maturity.

The amortized cost and fair value of fixed maturity securities at September 30, 2021 by contractual maturity are shown in the table below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date have been reflected based upon final stated maturity.


September 30, 2021	Amortized Cost		Fair Value
(In thousands)
Fixed maturity securities:
Due in one year or less	$	31,502	32,097
Due after one year through five years	120,606		130,861
Due after five years through ten years	199,687		218,519
Due after ten years	972,512		1,075,217
Total fixed maturity securities	$	1,324,307	1,456,694

The Company uses the specific identification method of the individual security to determine the cost basis used in the calculation of realized gains and losses related to security sales.



	Three Months Ended			Nine Months Ended
Fixed Maturity Securities, Available-for-Sale	September 30,			September 30,
(In thousands)	2021		2020	2021	2020

Proceeds	$	984	11,221	8,238	17,524
Gross realized gains	$	89	25	189	148
Gross realized losses	$	—	77	1	134

The Company sold 10 and 28 AFS fixed maturity securities during the three and nine months ended September 30, 2021 and 18 and 24 during the three and nine months ended September 30, 2020, respectively.

The Company sold its former training facility near Austin, Texas during the third quarter 2021 for a gross sale price of $3.8 million, resulting in a gain on the sale of $1.0 million. The facility was owned by Citizens and was held in Other Non-Insurance Enterprises.

(6) FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We hold AFS fixed maturity securities, which are carried at fair value. We also report our equity securities at fair value with changes in fair value reported through the consolidated statements of operations and comprehensive income (loss).

Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of

September 30, 2021 | 10-Q 20

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:

•Level 1 - Quoted prices for identical instruments in active markets.

•Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or whose significant value drivers are observable.

•Level 3 - Instruments whose significant value drivers are unobservable.

Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments.

Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes. These pricing models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments. All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, securities issued by states and political subdivisions and certain mortgage and asset-backed securities.

Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information. Real estate held-for-sale is in this category.

September 30, 2021 | 10-Q 21

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

The following tables set forth our assets that are measured at fair value on a recurring basis as of the dates indicated.


September 30, 2021	Level 1		Level 2	Level 3	Total Fair Value
(In thousands)
Financial Assets
Fixed maturity securities available-for-sale
U.S. Treasury and U.S. Government-sponsored enterprises	$	8,335	4,515	—	12,850
States and political subdivisions	—		382,322	—	382,322
Corporate	51		881,291	—	881,342

Residential mortgage-backed	—		134,522	—	134,522
Asset-backed	—		45,546	—	45,546
Foreign governments	—		112	—	112
Total fixed maturity securities available-for-sale	8,386		1,448,308	—	1,456,694

Equity securities
Stock mutual funds	3,407		—	—	3,407
Bond mutual funds	12,512		—	—	12,512
Common stock	1,072		—	—	1,072
Non-redeemable preferred stock	272		—	—	272
Non-redeemable preferred stock fund	5,072		—	—	5,072
Total equity securities	22,335		—	—	22,335
Other long-term investments (1)	—		—	—	32,651
Total financial assets	$	30,721	1,448,308	—	1,511,680

(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

September 30, 2021 | 10-Q 22

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)


December 31, 2020	Level 1		Level 2	Level 3	Total Fair Value
(In thousands)
Financial Assets
Fixed maturity securities available-for-sale
U.S. Treasury and U.S. Government-sponsored enterprises	$	11,326	4,791	—	16,117
States and political subdivisions	—		409,665	—	409,665
Corporate	52		877,156	—	877,208
Commercial mortgage-backed	—		221	—	221
Residential mortgage-backed	—		139,963	—	139,963
Asset-backed	—		46,091	—	46,091
Foreign governments	—		118	—	118
Total fixed maturity securities available-for-sale	11,378		1,478,005	—	1,489,383

Equity securities
Stock mutual funds	3,174		—	—	3,174
Bond mutual funds	12,354		—	—	12,354
Common stock	1,143		—	—	1,143
Non-redeemable preferred stock	281		—	—	281
Non-redeemable preferred stock fund	5,150		—	—	5,150
Total equity securities	22,102		—	—	22,102
Other long-term investments (1)	—		—	—	11,923
Total financial assets	$	33,480	1,478,005	—	1,523,408
(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

FINANCIAL INSTRUMENTS VALUATION

FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE

Fixed maturity securities, available-for-sale. At September 30, 2021, our fixed maturity securities, valued using a third-party pricing source, totaled $1.4 billion for Level 2 assets and comprised 95.8% of total reported fair value of our financial assets. The Level 1 and Level 2 valuations are reviewed and updated quarterly through testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades. In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness. There were no Level 3 assets at September 30, 2021. For the nine months ended September 30, 2021, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received.

Equity securities. Our equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices.

Limited partnerships. The Company considers the net asset value ("NAV") to represent the value of the investment fund and is measured by the total value of assets minus the total value of liabilities. The following tables include information related to our investments in limited partnerships that calculate NAV per share. For these investments, which are measured at fair value on a recurring basis, we use the NAV per share to measure fair value. Changes in the NAV of our limited partnerships are recorded through net income. The Company recognized net realized gains

September 30, 2021 | 10-Q 23

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

of $1.3 million and $5.8 million on limited partnerships held for the three and nine months ended September 30, 2021 and gains of $0.2 million for both the three and nine months ended September 30, 2020. These investments are included in other long-term investments on the consolidated balance sheets.


		September 30, 2021				December 31, 2020
		Fair Value Using NAV Per Share		Unfunded Commit- ments	Life in years	Fair Value Using NAV Per Share		Unfunded Commit- ments	Life in years
(In thousands, except years)
Limited partnerships
Middle market	Investments in privately-originated, performing senior secured debt primarily in North America-based companies	$	13,847	26,645	10	$	10,542	29,783	10
Term liquidity facility	Investments in a facility established by the U.S. Federal Reserve that provides financing to U.S. company market participants for levered asset purchases with a focus on asset-backed, commercial mortgage and collateralized loan obligation markets	—		—	0	1,381		—	3
Late-stage growth	Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale	16,864		8,525	7	—		16,291	7
Infrastructure	Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy	1,940		17,784	12	—		17,497	12
Total limited partnerships		$	32,651	52,954		$	11,923	63,571

Our limited partnership investments are not redeemable because distributions will be received when the underlying investments of the partnerships are liquidated. The life spans indicated above may be shortened or extended at the fund manager's discretion, typically in one or two-year increments.

We initially estimate the fair value of investments in limited partnerships by reference to the transaction price. Subsequently, we obtain the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are audited annually. We carried no limited partnership investments at cost at September 30, 2021 and $6.2 million of limited partnership investments at cost at December 31, 2020.

We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. There were no transfers in or out of Level 3 during the nine months ended September 30, 2021 or 2020.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments. The fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions.

September 30, 2021 | 10-Q 24

Table of Contents


CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

The carrying amount and fair value for the financial assets and liabilities on the consolidated balance sheets not otherwise disclosed for the periods indicated are as follows:


	September 30, 2021			December 31, 2020
(In thousands)	Carrying Value		Fair Value	Carrying Value	Fair Value

Financial Assets:
Policy loans	$	80,102	80,102	83,318	83,318
Commercial mortgage loan	1,000		1,000	—	—
Residential mortgage loans	150		169	157	195

Cash and cash equivalents	30,087		30,087	34,131	34,131
Financial Liabilities:
Annuity - investment contracts	63,690		69,603	60,861	71,547

Policy loans. Policy loans had a weighted average annual interest rate of 7.7% at September 30, 2021 and December 31, 2020, and no specified maturity dates. The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets. Policy loans are an integral part of the life insurance policies we have in force, cannot be valued separately and are not marketable. Therefore, the fair value of policy loans approximates the carrying value and policy loans are considered Level 3 assets in the fair value hierarchy.

Commercial mortgage loan. We financed $1.0 million of the sale of our training facility at a 6.0% interest rate. The loan is due in less than 1 year. Due to the short-term nature of the loan, the carrying value approximates fair value.

Residential mortgage loans. Mortgage loans are secured principally by residential properties. Weighted average interest rates for these loans were approximately 6.4% at September 30, 2021 and December 31, 2020. At September 30, 2021, maturities ranged from 5 to 18 years. Management estimated the fair value using an annual interest rate of 6.25% at September 30, 2021. Our mortgage loans are considered Level 3 assets in the fair value hierarchy and are included in other long-term investments on the consolidated balance sheets.

Cash and cash equivalents. The fair value of cash and cash equivalents approximate carrying value and are characterized as Level 1 assets in the fair value hierarchy.

Annuity liabilities. The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at September 30, 2021 and December 31, 2020 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 0.19% to 2.59% and 0.22% to 2.34%, respectively. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

September 30, 2021 | 10-Q 25

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CITIZENS, INC.	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		(Unaudited)

Other long-term investments. Financial instruments included in other long-term investments are classified in various levels of the fair value hierarchy. The following table summarizes the carrying amounts of these investments.


Carrying Value (In thousands)			September 30, 2021						December 31, 2020