Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.
OVERVIEW
For over 55 years, Citizens has been fulfilling the needs of our policyholders and their families by providing insurance products that offer both living and death benefits. We conduct insurance related operations through our insurance subsidiaries, which provide benefits to policyholders globally. We specialize in offering primarily individual whole life insurance, endowment products and final expense insurance in niche markets where we believe we can optimize our competitive position.
As an insurance provider, we collect premiums on an ongoing basis from our policyholders and invest the majority of the premiums to pay future benefits, including claims, surrenders and policyholder dividends. Accordingly, the Company derives its revenues principally from: (1) life insurance premiums earned for insurance coverages provided to insureds in our two operating segments – International Insurance and Domestic Insurance; and (2) net investment income. In addition to paying and reserving for insurance benefits that we pay to our policyholders, our expenses consist primarily of the costs of selling our insurance products (e.g., commissions, underwriting, marketing expenses), operating expenses and income taxes.
Objective of our Management's Discussion and Analysis
We refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations as our “MD&A”. The objective of our MD&A is to provide investors with a succinct analysis of the Company's financial performance from management's perspective. We start by discussing how industry developments and economic circumstances in general (e.g., interest rate environment) affected or could affect our financial performance and then discuss how certain events specifically impacted our business. We summarize our financial highlights and discuss the factors that we believe drive our operating results. We then discuss in more detail our results of operations for the year ended December 31, 2025 so an investor or potential investor understands the various line items of our profit and loss statements from management’s perspective. Since our investments are one of two principal sources of our revenues, we describe them in detail. Finally, we discuss our capital resources and liquidity so investors better understand how those resources are utilized and how we are able to meet our cash needs.
Throughout the MD&A, we describe how we view the Company and which matters we believe are reasonably likely to affect future operations. We describe our priorities for the business in Part I. Item 1. Business - Strategic Initiatives and in the MD&A, we describe how we performed on those initiatives and any known trends or uncertainties that might impact our ability to achieve our goals.
ECONOMIC AND INSURANCE INDUSTRY DEVELOPMENTS
Life insurers continue to operate in an environment marked by economic volatility, shifting financial market conditions, evolving regulatory expectations, geopolitical uncertainty and rapid technological change. These developments have influenced profitability, product demand, capital requirements, and consumer behavior across the industry, including our Company.
Interest Rate Environment, Market Volatility and Inflation. The material uptick in interest rates over the past few years has generally benefited life insurers by improving reinvestment yields and net investment income. However, these benefits have been partially offset by unrealized losses in fixed-income portfolios as market values declined during the rate‑rising cycle, a trend observable across the industry. Life insurers remain sensitive to interest‑rate movements given the asset‑intensive nature of the business and long‑duration liabilities.
Inflation has also affected insurers by reducing customer discretionary income and potentially increasing lapse rates, especially among lower- and middle-income policyholders. Additionally, inflation can increase operating
December 31, 2025 | 10-K 24
Table of Contents
CITIZENS, INC.
expenses and claims‑related costs. Prolonged inflationary pressure may continue to affect both consumer purchasing behavior and overall insurer expense structures.
Prior to 2022, the life insurance industry operated for more than a decade in a sustained low interest rate environment, which constrained investment yields and compressed spreads. As older, higher-yielding assets matured or were called, insurers were required to reinvest at lower rates, reducing margins on products with guaranteed minimum interest rates. These dynamics contributed to reserve strengthening, loss recognition events, and faster amortization of deferred acquisition costs for certain products across the sector. Although the rate environment has shifted, legacy portfolios and in‑force blocks continue to be influenced by these earlier conditions.
Reinsurance Market Dynamics. Reinsurance markets have tightened due to factors such as increased cybersecurity risks, significant weather-related losses, pandemic losses, and volatility in asset valuations. These pressures have led to a decline in the availability of reinsurance, tighter terms (such as, for example, pandemic exclusions) and/or increased reinsurance prices. Continued market tightening could increase our cost of reinsurance or limit availability, which may affect our risk transfer strategies and capital management.
Technology, Innovation and Digitization. T echnological advancement continues to reshape the life insurance sector. Insurers are investing in digital distribution capabilities, automated underwriting, advanced analytics, and generative artificial intelligence to improve customer experience, enhance agent productivity, and streamline operations. These innovations are transforming how products are designed, marketed, and serviced. While technology presents opportunities to increase efficiency and support profitable growth, it also introduces industry‑wide challenges related to cybersecurity, data governance, and compliance with evolving regulatory frameworks. These technological developments also require continuous investment in digital platforms, system modernization, and data capabilities. Failure to invest adequately could impair our ability to compete effectively, support our distribution partners, meet policyholder expectations, or comply with evolving cybersecurity and data‑governance standards. Ongoing investment is therefore an important component of our long‑term strategy.
RE-SEGMENTATION OF REPORTABLE SEGMENTS
Effective December 31, 2025, the Company reorganized its insurance reporting structure, shifting from Life Insurance and Home Service Insurance segments to Domestic Insurance and International Insurance segments.
The Company’s reportable segments are based on the geographic location of operations and the nature of products and services offered. Management believes this structure provides a more meaningful view of the business and better reflects the way performance is assessed internally. Historically, our operations were organized into (i) Life Insurance, which included both U.S. domestic life insurance products and our international life operations, and (ii) Home Services Insurance, which consisted primarily of our Louisiana‑based, face‑to‑face home services business. Management has implemented several strategic initiatives over the past few years aimed at enhancing profitability and operational efficiency. These efforts, combined with improved sales performance, have strengthened the Company’s overall business. Given these developments, management concluded that the prior segmentation no longer reflected how the Chief Operating Decision Maker ("CODM") reviews performance, allocates resources, and assesses the strategic direction of the business. Accordingly, we have combined our former domestic life and home services operations into a single Domestic Insurance segment and report all non‑U.S. operations in the International Insurance segment.
Recast of Prior‑Period Financial Information
In accordance with the segment reporting guidance under ASC 280, we have recast prior‑period segment information within this report to conform to the new segment structure. These changes affect only how we present results by segment and had no impact on our previously reported consolidated financial statements, including net income, earnings per share, total assets, or cash flows.
Recast segment results for prior periods are included within this Form 10‑K to provide comparability and to assist readers in understanding trends in our operating performance under the revised structure.
Impact on MD&A
The MD&A reflects our results for fiscal year 2025 and all comparative periods under the Domestic Insurance and International Insurance segment structure. Management believes this realignment enhances transparency and more
December 31, 2025 | 10-K 25
Table of Contents
CITIZENS, INC.
accurately reflects the manner in which we operate the business, evaluate performance, and execute our strategic priorities.
EVENTS THAT IMPACTED OUR BUSINESS
From time to time, certain events may affect our business in ways that cause current or future results to differ from past results. In addition to factors described in Part I. Item 1A. Risk Factors , the following events impacted our results of operations or financial condition.
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. ("BlackRock") announced a substantial write-down of its Global Renewable Power Fund III, a $4.8 billion flagship renewable fund, due to the collapse of two key investments: Northvolt and SolarZero. 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. This sector has experienced market headwinds primarily driven by rising interest rates, supply chain disruption and less certain policy environment. 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
See Part IV. Item 15. Note 8. Commitments and Contingencies , as well as Part I. Item 3. 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
Table of Contents
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.
Premium Revenues. Premium revenues consist of all money deposited by customers into new and existing insurance policies. We view these premiums in two categories - first year premiums are premiums received within the first 12 months of a policy's issuance and any premiums received thereafter are renewal premiums.
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
Table of Contents
CITIZENS, INC.
First Year Premiums. 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.
Renewal Premiums. 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.
Investment Income. 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
Table of Contents
CITIZENS, INC.
Claims and Surrenders. 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.
Operating Expenses. Operating expenses are our second largest expense and thus also drive our operating results. Operating expenses are meaningful to gaining an understanding of how we manage our business, including among other things, salaries, benefits, and spending on growth initiatives. 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. Operating expenses in 2024 were negatively impacted by the accrual of $3.5 million in legal fees awarded to certain defendants in the trade secret lawsuit. We have not paid any fees and have appealed the judgment against us. See Part IV. Item 15. Note 8. Commitments and Contingencies , as well as Part I. Item 3. Legal Proceedings - Trade Secret Lawsuit for additional details.
Actuarial Assumptions. The actuarial assumptions that underlie our reserves are based upon our best estimates of certain factors such as mortality, lapses, morbidity and discount rates. Our results will be affected to the extent there is a variance between our actuarial assumptions and actual experience. This is reflected in our Consolidated Statements of Operations and Comprehensive Income as Increase (Decrease) in Future Policy Benefit Reserves and Policyholder Liability Remeasurement (Gain) Loss.
In 2025, we experienced a rebalancing in our mix of business due to the volume of maturities in our international endowment business, as well as continued growth in our Domestic Insurance segment. Our current profitability is affected by how closely actual experience matches our actuarial assumptions for these shifts, and by the amount of reserves we must hold. Updated assumptions to policyholder liability remeasurement (gain) loss improved our operating results by $2.2 million in 2025 due to better than expected experience in our Domestic Insurance segment. Actuarial assumptions are continually monitored and updated at least annually to reflect overall experience as well as emerging trends.
December 31, 2025 | 10-K 29
Table of Contents
CITIZENS, INC.
CONSOLIDATED RESULTS OF OPERATIONS
Our Operating Segments
We manage our business in two operating segments: International Insurance and Domestic Insurance. See Part I. Item 1. Business for a discussion about the business operations in each segment.
Our insurance operations are the primary focus of the Company, as these operations generate most of our income. See the discussion under Segment Operations below for detailed analysis. The amount of direct insurance, number of policies, and average face amounts for life policies issued during the periods indicated are shown below.
Years Ended December 31,
Amount of
Insurance
Issued
Number of
Policies
Issued
Average Policy
Face Amount
Issued
Amount of
Insurance
Issued
Number of
Policies
Issued
Average Policy
Face Amount
Issued
International Insurance
Domestic Insurance
Total
In 2025, we issued $1.1 billion in new insurance, the second highest amount of insurance ever issued in a year by our company, as we continued to grow our inforce business with our newer products tailored to our specific markets.
Our International Insurance segment benefited from increased sales of our whole life product, which accounted for 64% of total insurance issued in this segment in 2025. This product tends to have higher policy face amounts than our older endowment products, leading to an increase in insurance issued internationally.
In our Domestic Insurance segment, implementation of new initiatives in CLOA, including use of information to enhance underwriting decisions with additional medical and lab data from third parties, resulted in sales of products with lower policy face amounts, which led to a lower amount of insurance issued despite a higher number of policies issued. We believe growth in this segment is being impacted by inflation on the cost of living, which has affected new sales since the customer demographic is primarily lower-income individuals.
The amount of direct insurance inforce for the years indicated is shown below.
Overall insurance inforce has grown due to the issuance of new business, but growth has been and will be impacted by persistency rates, policy maturities and surrenders.
December 31, 2025 | 10-K 30
Table of Contents
CITIZENS, INC.
CONSOLIDATED RESULTS OF OPERATIONS
Our revenues are generated primarily by life insurance premiums and investment income from invested assets.
REVENUES
Years ended December 31,
(In thousands)
Revenues:
Premiums:
Life insurance
Accident and health insurance
Property insurance
Net investment income
Investment related gains (losses)
Other income
Total revenues
Years ended December 31,
(In thousands)
Life and A&H premiums:
Direct premiums:
First year
Renewal
Total direct life and A&H premiums
Reinsurance
Total premiums
Our first year direct premiums increased 16% in 2025 compared to 2024 due to sales of our newer product offerings and expanded distribution in our Domestic Insurance segment. Renewal premiums increased from strong first year sales in 2024 in our Domestic Insurance segment leading to higher number of policies paying renewal premiums in 2025, which more than offset the impact from matured endowments and the high level of surrenders during the last few years in our International Insurance segment.
Reinsurance ceded premiums increased in 2025 compared to 2024 due to the RGA Agreement we entered into the second quarter of 2024, which relates to our CLOA final expense business.
December 31, 2025 | 10-K 31
Table of Contents
CITIZENS, INC.
Net Investment Income. A summary of our net investment income and net investment income performance is as follows:
Years ended December 31,
(In thousands, except for %)
Gross investment income:
Fixed maturity securities
Equity securities
Policy loans
Other long-term investments
Other
Total investment income
Investment expenses
Net investment income
Average invested assets, at amortized cost
Yield on average invested assets
Fixed maturity securities constitute the vast majority, or 89%, of our investment portfolio based on fair value and thus provide the majority of our net investment income. Our net fixed maturity investment portfolio, primarily invested in callable securities, has faced challenges due to the sustained low interest rate environment for the 10 years prior to 2021. Many securities were called between 2019 and 2021, which required us to reinvest in lower interest rate fixed maturity assets, which impacts net investment income and yields. In order to enhance yields, we are investing in new opportunities, including investment grade private placement fixed income securities and other asset classes, while maintaining a prudent risk profile.
Investment Related Gains (Losses). We recorded an investment related gain of $0.1 million during 2025, compared to a loss of $2.6 million in 2024. As discussed above, the loss in 2024 was due to our write-down of the BlackRock ESG investment. In 2025, positive fair value changes in limited partnership investments, specifically our private late-stage growth and global equity funds, counterbalanced the impact of the BlackRock write-down. The changes in fair values of our equity securities are reflected as investment related gains or losses in our Consolidated Statements of Operations and Comprehensive Income, in addition to executed transactions that result in a gain or loss.
Other Income . Other income consists primarily of supplemental contracts issued to policyholders in our International Insurance segment upon the surrender or maturity of their original policies. Supplemental contracts offer our policyholders the opportunity to leave their cash with us and be paid interest at a guaranteed rate or receive an annuity, at their option.
December 31, 2025 | 10-K 32
Table of Contents
CITIZENS, INC.
BENEFITS AND EXPENSES
Years ended December 31,
(In thousands)
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders
Increase (decrease) in future policy benefit reserves
Policyholder liability remeasurement (gain) loss
Policyholders' dividends
Total insurance benefits paid or provided
Commissions
Other general expenses
Capitalization of deferred policy acquisition costs
Amortization of deferred policy acquisition costs
Amortization of cost of insurance acquired
Total benefits and expenses
Payments of claims and surrenders benefits constitute the vast majority of our expenses.
Claims and Surrenders.
Years ended December 31,
(In thousands)
Claims and surrenders:
Death claim benefits
Surrender benefits
Endowment benefits
Matured endowment benefits
A&H and other policy benefits
Total claims and surrenders
Death claim benefits decreased 9% in 2025 compared to 2024 due to both lower volume and the RGA Agreement, which alleviates some of our liability to pay death claims. We did not have the RGA Agreement during a portion of 2024.
90% of our surrender benefits payments are made on policies surrendered in our International Insurance segment. These policies are generally policies that have been in place for many years, built up cash values, and have little or no surrender charges remaining. Surrender benefits decreased 5% in 2025 compared to 2024 and vary from one period to another. We continue to focus efforts on retention initiatives.
Over the past several years, many of our endowment policies have been reaching their contractual maturity dates and in 2025, we experienced our highest level of matured endowment benefits payments ever. We anticipated this $23.3 million increase in 2025 based upon the contractual maturity dates. We expect matured endowment benefits to remain at elevated, but slightly lower levels over the next few years, as more of these contracts expire.
Increase (Decrease) in Future Policy Benefit Reserves. Future policy benefit reserves reflect the liability established to provide for the future payment of policy benefits and thus they generally increase when we have a larger in force block of business due to higher sales and persistency (i.e., more policies on which we expect to pay future benefits) and decrease when we have lower sales and persistency. In the year ended December 31, 2025,
December 31, 2025 | 10-K 33
Table of Contents
CITIZENS, INC.
the change in future policy benefit reserves decreased significantly as compared to 2024 despite the increase in our inforce business, due to the amount of reserves released in connection with matured endowments.
Policyholder Liability Remeasurement (Gain) Loss. Most of our products are long-duration contracts that provide a specified, fixed amount of insurance benefit in exchange for a fixed premium. When a policy is initially issued, we establish a "net premium ratio" ("NPR") using assumptions regarding expected premiums and policyholder benefit liabilities. On a quarterly basis, we review actual versus expected experience in such quarter, which is reported as a policyholder liability remeasurement gain (if better performance than assumptions) or loss (if lower performance than assumptions). Additionally, the best estimate assumptions are updated every year in our third quarter and are reflected on our income statement as a policyholder liability remeasurement gain or loss. In 2025, the remeasurement (gain) loss was positively affected by updates to mortality and assumptions that reflect emerging experience for each of our segment blocks of business.
Commissions. Commission expenses are a cost of acquiring business, as commissions are the primary compensation paid to our independent agents for selling our products. First year commission rates are higher than renewal commission rates and thus commissions fluctuate directly in relation to first year sales. Although first year sales increased in 2025 as compared to 2024, commissions decreased due to the RGA Agreement since RGA shares in commission expenses.
Other General Expenses. Total general expenses increased $0.8 million in 2025 compared to 2024. Although we continue to incur costs related to our strategic growth initiatives and costs incurred associated with our equity compensation program due to higher stock price and additional participants, we incurred a $3.5 million legal fee in the 2024 due to the trade secret lawsuit. We continue to work on managing controllable operating expenses while investing in growth initiatives.
Capitalization of Deferred Policy Acquisition Costs ("DAC"). We capitalize costs related to successful sales of our insurance products, which include certain commissions, policy issuance costs, and underwriting and agency expenses. These costs vary based upon amounts of premiums received and ceded related to new and renewal business.
Amortization of Deferred Policy Acquisition Costs. Amortization of DAC totaled $18.9 million and $17.4 million in 2025 and 2024, respectively. DAC is amortized on a constant level basis over the expected term of the related contracts to approximate straight-line amortization.
Federal Income Tax. Tax expense increased in 2025 resulting in an effective tax rate of 16.5%, compared to 0.5% in 2024. The increase in 2025 primarily reflects higher taxable U.S. income and discrete tax adjustments recorded in the year. Excluding the discrete tax adjustments, the effective tax rate in 2025 would have been 11.6%. In 2025, the Company recognized an $0.8 million return-to-provision true-up related to 2024 Subpart F income adjustments from partnership investments, which increased tax expense in the year.
The Company's tax rate was impacted by differences between our effective tax rate and the statutory tax rate resulting from income and expense items that are treated differently for financial reporting and tax purposes. In addition, CICA International is considered a controlled foreign corporation for federal tax purposes and CICA International's activity gives rise to taxable income in the U.S. as Subpart F Income, which is treated as a permanent tax difference and therefore included in the Company's effective tax rate calculation. See Part I . Item 1 . Note 11. Income Taxes in the notes to our consolidated financial statements herein.
SEGMENT OPERATIONS
Effective December 31, 2025, the Company reorganized its insurance reporting structure, shifting from Life Insurance and Home Service Insurance segments to Domestic Insurance and International Insurance segments.
These segments are reported in accordance with U.S. GAAP. The Company evaluates profit and loss performance based on U.S. GAAP net income (loss) before federal income taxes for these segments. The Company's Other Non-Insurance enterprises include non-insurance operations such as IT and corporate-support functions, which are included in the table presented below to properly reconcile the segment information with the consolidated financial statements of the Company.
December 31, 2025 | 10-K 34
Table of Contents
CITIZENS, INC.
The re-segmentation has been applied retrospectively to all periods presented to ensure comparability. The following tables present segment information for the years ended December 31, 2025 and 2024, as if the current segment structure had been in place during those periods. The following table sets forth income (loss) before federal income taxes by segment during the periods indicated.
Years ended December 31,
(In thousands)
Income before federal income taxes:
Segments:
International
Domestic
Total Segments
Other Non-Insurance Enterprises
Total income before federal income taxes
INTERNATIONAL INSURANCE
Detailed results of operations for the International Insurance segment for the periods indicated are as follows:
Years ended December 31,
(In thousands)
Revenues:
Premiums:
Life insurance
Accident and health insurance
Net investment income
Investment related gains (losses), net
Other income
Total revenues
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders
Increase (decrease) in future policy benefit reserves
Policyholder liability remeasurement (gain) loss
Policyholders' dividends
Total insurance benefits paid or provided
Commissions
Other general expenses
Capitalization of deferred policy acquisition costs
Amortization of deferred policy acquisition costs
Total benefits and expenses
Income (loss) before federal income taxes
In our International Insurance segment, income before federal income tax was $14.4 million in 2025, as compared to $23.5 million in 2024. Maturing endowments over the last several years have negatively impacted renewal premiums and in 2025, we had our highest level of matured endowments, which led to the $21.3 million increase in claims and surrenders. We expect this amount to decrease in 2026 and consistently over the next few years, as these contracts continue to expire.
December 31, 2025 | 10-K 35
Table of Contents
CITIZENS, INC.
Premium breakout is detailed below.
Years ended December 31,
(In thousands)
Premiums:
Direct premiums:
First year
Renewal
Total direct premiums
Reinsurance
Total premiums
Direct premiums decreased by $0.3 million in 2025 as compared to 2024 due to the impact the matured endowments have had on renewal premiums. First year premiums continued to grow due to sales of new products.
Our International Insurance segment derives its premiums from policyholders residing in nearly 80 countries worldwide. The following table sets forth our premiums by top locations for the years ended December 31, 2025 and 2024.
Years ended December 31,
(In thousands)
International premiums:
Colombia
Taiwan
Ecuador
Venezuela
Argentina
Other
Reinsurance and change in premium accruals
Total premiums
Sales in Taiwan have been declining recently due to leadership succession related difficulties within our primary distribution agency in Taiwan, regulatory challenges and geopolitical shift. We are facing some headwinds in Venezuela that may affect premium revenues due to the strength of the U.S. dollar compared to the local currency and their difficulties to obtain dollars. The recent political instability may cause further decline in this business. We continue to closely monitor emerging trends in our Venezuela business.
Investment Related Gains (Losses), Net. Investment related gains and losses improved in 2025 compared to 2024 largely due to the BlackRock write-down in 2024. These gains and losses are generally a result of the change in estimated fair market value for our limited partnerships, as previously discussed.
Other Income. Other income consists primarily of supplemental contracts issued to policyholders upon the surrender or maturity of their original policies. Supplemental contracts offer our policyholders the opportunity to leave their cash with us and be paid interest at a guaranteed rate or receive an annuity, at their option. As our matured endowments have increased, a growing number of policyholders have chosen to enter into a supplemental contract and thus other income has steadily increased over the last few years.
December 31, 2025 | 10-K 36
Table of Contents
CITIZENS, INC.
Benefits and Expenses.
Claims and surrender benefits breakout is detailed below.
Years ended December 31,
(In thousands)
Claims and surrenders:
Death claim benefits
Surrender benefits
Endowment benefits
Matured endowment benefits
A&H and other policy benefits
Total claims and surrenders
As discussed, the majority of our claims and surrender benefits in this segment were related to payment of matured endowment benefits. Surrender benefits are also a large component of this expense; often as surrender charges expire on endowments after certain periods, policyholders surrender their policies to access the cash value. Surrenders decreased in 2025 compared to 2024, which we believe is due to our retention efforts.
Other General Expenses. General expenses increased due primarily to elevated convention costs and increased consulting related to the campaigns to expand our market to drive long-term value.
December 31, 2025 | 10-K 37
Table of Contents
CITIZENS, INC.
DOMESTIC INSURANCE
Detailed results of operations for the Domestic Insurance segment for the periods indicated are as follows:
Years ended December 31,
(In thousands)
Revenues:
Premiums:
Life insurance
Accident and health insurance
Property insurance
Net investment income
Investment related gains (losses), net
Other income (loss)
Total revenues
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders
Increase in future policy benefit reserves
Policyholder liability remeasurement (gain) loss
Policyholders' dividends
Total insurance benefits paid or provided
Commissions
Other general expenses
Capitalization of deferred policy acquisition costs
Amortization of deferred policy acquisition costs
Amortization of cost of insurance acquired
Total benefits and expenses
Income (loss) before federal income taxes
In our Domestic Insurance segment, income before federal income tax was $12.1 million in 2025, as compared to $1.9 million in 2024. The significant increase was driven by increased premiums and lower insurance benefits paid or provided due to better experience in this segment.
Premium breakout is detailed below.
Years ended December 31,
(In thousands)
Life & A&H premiums:
Direct Life & A&H premiums:
First year
Renewal
Total direct life and A&H premiums
Reinsurance
Total life and A&H premiums
Total direct premiums increased in 2025 compared to 2024 due largely to continued first year premium growth in our CLOA final expense business as well as higher renewal premiums due to the large volume of sales in 2024.
December 31, 2025 | 10-K 38
Table of Contents
CITIZENS, INC.
Because of the RGA Agreement, reinsurance premiums ceded also increased significantly, leading to an overall increase in premium revenue in this segment of $3.5 million.
Benefits and Expenses.
Claims and surrender benefits breakout is detailed below.
Years ended December 31,
(In thousands)
Claims and surrenders:
Death claim benefits
Surrender benefits
Endowment benefits
Matured endowment benefits
A&H and other policy benefits
Total claims and surrenders
In our Domestic Insurance segment, the majority of claims and surrender benefits is death claim benefits. Death claim benefits decreased 11% in 2025 compared to 2024 due to a combination of lower volume and our coinsurance agreement with RGA alleviating some of our liability to pay these claims. We did not have the RGA Agreement during a portion of 2024. Mortality experience is closely monitored by the Company as a key performance indicator and fluctuates from quarter-to-quarter based on reported claims.
Policyholder Liability Remeasurement (Gain) Loss. In 2025, remeasurement gain increased significantly as a result of favorable mortality experience compared to our previous assumptions.
Other General Expenses. Other general expenses increased by $0.9 million in 2025 compared to 2024 due to growth in this business.
NON-INSURANCE ENTERPRISES
Years ended December 31,
(In thousands)
Income (loss) before federal income tax
This operating unit represents the administrative support functions for the insurance operations. Its revenues are primarily intercompany and have been eliminated in consolidation under U.S. GAAP, which typically results in a loss. Revenue in this operating unit consists primarily of net investment income and investment related gains or losses, while expenses consist of other general expenses related to corporate functions. The loss reported for 2025 decreased mostly due to a $3.5 million legal fee incurred during the second quarter of 2024, which did not recur in 2025, though this was somewhat offset by increased equity incentive compensation program from additional participants and a higher share price, which led to greater costs recognized as these awards vest.
INVESTMENTS
Our investments are an integral part of our business success, as we invest the majority of premiums collected to pay for future benefits and rely on net investment income for our ongoing operations. Our cash and invested assets at December 31, 2025 were $1.5 billion, of which 88% was invested in fixed maturity securities, all of which are classified as available-for-sale. We closely monitor the duration of our fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy our insurance obligations.
December 31, 2025 | 10-K 39
Table of Contents
CITIZENS, INC.
The following table shows the carrying value of our investments by investment category and cash and cash equivalents and the percentage of each to total cash, cash equivalents and invested assets.
As of December 31,
(In thousands, except for %)
Cash, cash equivalents and invested assets:
Fixed maturity securities:
U.S. Treasury and U.S. Government-sponsored enterprises
Corporate
Municipal bonds (1)
Mortgage-backed (2)
Asset-backed
Total fixed maturity securities
Cash and cash equivalents
Other investments:
Policy loans
Equity securities
Other long-term investments
Total cash, cash equivalents and invested assets
(1) Includes $106.9 million and $113.4 million of securities guaranteed by third parties at December 31, 2025 and 2024, respectively.
(2) Includes $101.1 million and $92.8 million of U.S. Government-sponsored enterprises at December 31, 2025 and 2024, respectively.
The carrying value of the Company’s fixed maturity securities investment portfolio at December 31, 2025 was $1.3 billion compared to $1.2 billion at December 31, 2024. This increase primarily reflects the impact of interest rate sensitivity on the fair value of our fixed maturity securities. The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of December 31, 2025 did not materially change from December 31, 2024 – the weighted average was “A” at both dates.
Cash and cash equivalents decreased as of December 31, 2025 compared to December 31, 2024 and fluctuate from period to period primarily due to the timing of operating and investing activities.
Other long-term investments decreased to $85.4 million as of December 31, 2025, as compared to $93.6 million as of December 31, 2024 primarily due to the fact that we divested from one of our holdings to invest in new opportunities, including investment grade private placement fixed income securities and structured notes. This reduction was partially counterbalanced by capital contributions to other investments and the impact of changes in the fair market value of our limited partnership holdings.
The following table shows annualized investment yields by segment and on a consolidated basis as of December 31 for each year presented.
Year
International Insurance
Domestic Insurance
Consolidated
Yields on invested assets vary between segment operations due to different portfolio mixes and durations in each segment's portfolio. The consolidated yields include our other non-insurance enterprises. Our fixed maturity investment portfolio, primarily invested in callable securities, has faced challenges due to the sustained low interest rate environment over the past decade. Many securities were called between 2019 and 2021, necessitating
December 31, 2025 | 10-K 40
Table of Contents
CITIZENS, INC.
reinvestment in lower interest rate fixed maturity assets, which has begun and will continue to impact net investment income and yields. However, diversification of our investment portfolio into limited partnership investments helped offset that challenging investment environment.
Credit quality is an important feature of our fixed maturity securities because it directly affects the likelihood that an issuer will repay its debt—and therefore impacts both risk and return in a bond portfolio. Credit ratings are assigned by a Nationally Recognized Statistical Rating Organization ("NRSRO") such as Moody’s Investors Service and Standard & Poor’s. A credit rating assigned by a NRSRO is a quality-based rating, with AAA representing the highest quality (i.e., strong finances and lowest default risk) and D the lowest, with BBB and above being considered high-quality investment grade. If an issuer does not have a NRSRO rating, we may look at credit ratings assigned by the NAIC Securities Valuation Office ("SVO"). Fixed maturity securities that we hold that are rated by the SVO are grouped together with the bonds held in the equivalent NRSRO category, and securities that are not rated by a NRSRO or SVO are included in the "other" category.
The following table shows the credit ratings of our fixed maturity securities portfolio by carrying value.
December 31,
(In thousands, except for %)
AAA
BBB
BB and other
Totals
Our investment policy requires us to invest primarily in fixed maturity securities that are investment grade. The small percentage of non-investment grade securities that we hold are primarily the result of ratings downgrades. Additionally, in the third quarter of 2025, the Company purchased a structured note that includes a component categorized as non-investment grade fixed maturity securities.
December 31, 2025 | 10-K 41
Table of Contents
CITIZENS, INC.
Obligations of States and Political Subdivisions
18% of the Company’s fixed maturity securities investment portfolio at December 31, 2025 consists of municipal bonds, which are securities that are obligations of states and political subdivisions. A portion of these municipal bonds include third-party guarantees, which enhances a bond's credit rating. A presentation of our municipal bonds by credit rating and third-party guarantee is below.
December 31, 2025
General Obligation
Special Revenue
Other
Total
% Based on
Amortized
Cost
(In thousands, except for %)
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Municipal fixed maturity securities shown including third-party guarantees:
AAA
BBB
BB and other
Total
Municipal fixed maturity securities shown excluding third-party guarantees:
BBB
BB and other
Total
The table below shows the categories in which we held investments in special revenue municipal bonds that were greater than 10% of the fair value of our total municipal bond portfolio at December 31, 2025.
(In thousands, except for %)
Fair
Value
Amortized Cost
% of Total Fair Value
Education
Utilities
Transportation
The Company's municipal bond portfolio consists of bonds from state and political subdivisions in many states; however, as of December 31, 2025, municipal bonds from issuers in Texas and California comprised 21% and 17%, respectively, of the portfolio. There were no other states or individual issuer holdings equal to or greater than 10% of the total municipal bond portfolio as of December 31, 2025.
December 31, 2025 | 10-K 42
Table of Contents
CITIZENS, INC.
The table below reflects our Texas municipal bonds by credit rating at December 31, 2025.
General Obligation
Special Revenue
Other
Total
(In thousands)
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Texas state and political subdivision fixed maturity securities including third-party guarantees:
AAA
BBB
Total
Texas state and political subdivision fixed maturity securities excluding third-party guarantees:
BBB
BB and other
Total
The table below reflects our California municipal bonds by credit rating at December 31, 2025.
General Obligation
Special Revenue
Other
Total
(In thousands)
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
California state and political subdivision fixed maturity securities including third-party guarantees:
Total
California state and political subdivision fixed maturity securities excluding third-party guarantees:
BB and other
Total
IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY AND EQUITY SECURITIES
We analyze our available-for-sale ("AFS") fixed maturity securities that are experiencing unrealized losses to ascertain if there is an expectation of credit-related impairments. We did not record any credit valuation allowances on fixed maturity securities in either 2025 or 2024.
Gross unrealized losses on AFS fixed maturity securities amounted to $154.3 million as of December 31, 2025 and $185.7 million as of December 31, 2024. The enhancement in gross unrealized losses seen in 2025 stemmed from the rise in average market interest rates at the close of 2025, relative to those at the end of 2024.
Information on both unrealized and realized gains and losses by category is set forth in Part IV. Item 15. Note 2. Investments of the notes to our consolidated financial statements.
December 31, 2025 | 10-K 43
Table of Contents
CITIZENS, INC.
REINSURANCE
Our insurance subsidiaries use reinsurance to share life insurance risks with other companies, reducing exposure beyond their chosen retention limits and managing statutory capital. The Company periodically reviews and may adjust its retention levels, which can affect ceded premiums and revenues. Despite reinsurance, our subsidiaries remain responsible for policy obligations and may be liable if reinsurers fail to meet their commitments.
By evaluating our surplus in relation to the insured liabilities we maintain after retention, we consider our reinsurance arrangements to adequately provide for flexibility of strategy while protecting against downside risk.
The effect of reinsurance on premiums is as follows.
Years ended December 31,
(In thousands)
Direct premiums
Reinsurance assumed
Reinsurance ceded
Net premiums
Our insurance subsidiaries monitor the solvency of their reinsurers to minimize the risk of loss in the event of default by a reinsurer. The primary reinsurers of our insurance subsidiaries are large, well-capitalized entities who have ratings by A.M. Best Company ranging from A- (Excellent) to A+ (Superior).
The effect of reinsurance on life insurance in force is as follows.
As of December 31,
(In millions)
Direct written life insurance in force
Reinsurance assumed
Reinsurance ceded
Net life insurance in force
LIQUIDITY AND CAPITAL RESOURCES
Below are our primary capital resources (based on carrying value) at December 31, 2025 and 2024.
(In thousands)
Fixed maturity securities
Cash and cash equivalents
Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations. Cash provided by operating activities is an important liquidity metric because it reflects, during a given period, the amount of cash generated that is available to pay operating expenses, invest in our business or make strategic acquisitions. We manage our insurance operations as described herein in order to ensure that we have stable and reliable sources of cash flows to meet our obligations. In the year ended December 31, 2025, our operations provided $18.0 million of net cash.
We currently anticipate meeting our short-term and long-term cash needs with cash generated by our insurance operations and from our invested assets. 89% of our investments consist of marketable fixed maturity securities classified as available-for-sale that could be readily converted to cash for liquidity needs. Additionally, we may raise capital by selling shares in our SIP (as defined below) and may access our Credit Facility if needed (also as described below). Citizens had no debt at December 31, 2025.
December 31, 2025 | 10-K 44
Table of Contents
CITIZENS, INC.
We have traditionally also had significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows, for the most part, are reinvested in new investments. The investing activities fluctuate from period to period due to timing of securities activities such as calls and maturities and reinvestment of those funds. We purchased $170.4 million of fixed maturity securities and we also used $17.0 million to purchase other long-term investments in 2025.
PARENT COMPANY LIQUIDITY AND CAPITAL RESOURCES
Citizens is a holding company and has minimal operations of its own. Our assets consist of the capital stock of our subsidiaries, cash and investments. Our liquidity requirements are met primarily from two sources: cash generated from our operating subsidiaries and our invested assets. Our ability to obtain cash from our insurance subsidiaries depends primarily upon the availability of statutorily permissible payments, including payments we receive from service agreements with our insurance subsidiaries and dividends from the subsidiaries. The ability to make payments to the holding company is limited by applicable laws of the U.S. states of domicile and by the Puerto Rico Office of Commissioner of Insurance, which all subject insurance operations to significant regulatory restrictions. As discussed in Part I. Item 1. Business and Part I. Item 1A. Risk Factors , these laws and regulations require, among other things, that our insurance subsidiaries maintain minimum solvency or premium to surplus ratio requirements, which limit the amount of dividends that can be paid to the holding company. The regulations also require approval of our service agreements with the applicable regulatory authority in order to prevent insurance subsidiaries from moving large amounts of cash to the less regulated holding company.
In addition to the above-mentioned sources of cash, we offer a Stock Investment Plan ("SIP"), which allows investors, policyholders, independent contractors and agents, employees and directors to directly purchase our stock. At our option, purchases of stock under the SIP can be made from newly issued or treasury stock, rather than in the open market, in which case, we can raise capital by selling our shares.
We renewed our Credit Facility with Regions Bank on May 3, 2024 for an additional three years. See Part IV. Item 15. Note 8. Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of the Credit Facility. The Credit Facility provides additional liquidity to the Company for short-term or longer-term needs. As of December 31, 2025, we have not borrowed any money under the Credit Facility.
INSURANCE COMPANY SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of our insurance operations are primarily met by premium revenues, investment income and proceeds from investment maturities, calls or sales. Primary cash needs are for payments of policyholder benefits, investment purchases, and operating expenses. We manage our insurance operations in order to ensure that we have stable and reliable sources of cash flow to meet our obligations. As we have discussed, we have been growing our domestic CLOA business by developing new products and expanding our distribution channels, which has led to significant increases in first year premiums (i.e., new sales) in our Domestic Insurance segment in the last two years. When selling new policies, we incur upfront policy acquisition costs, such as agent commission payments. While historically, cash flows from our operations have been sufficient to meet our cash needs, we entered into the RGA Agreement to help with some of the costs, and the insurance subsidiaries also have the available-for-sale fixed maturity investment portfolio available to create additional cash flows if required. Two of our insurance subsidiaries are members of the Federal Home Loan Bank ("FHLB") of Dallas. FHLB membership provides the insurance subsidiaries with access to various low-cost collateralized borrowings and funding agreements. While not the only source of additional liquidity, the FHLB could provide the insurance subsidiaries with an additional source of liquidity, if needed.
We believe that we have adequate capital resources and ability to obtain additional capital if needed to support the short-term and longer-term liquidity requirements of our insurance operations. See Contractual Obligations and Off-balance Sheet Arrangements below for a discussion of known and estimated cash needs. Cash flow projections and cash flow tests under various market interest rate scenarios are performed annually to assist in evaluating liquidity needs and adequacy.
December 31, 2025 | 10-K 45
Table of Contents
CITIZENS, INC.
Trends, Demands and Restrictions on our Uses of Cash
Payments of benefits for claims and surrenders are our largest use of cash. There are three primary components of these payments: death claims, surrenders and matured endowments.
Matured Endowments. Our endowment products have contractual maturity dates and provide the policyholder with alternatives once the policy matures - they can choose to take a lump sum payout or leave the money on deposit at interest with the Company. Approximately 15% of the endowments in force will mature in the next five years, totaling approximately 5% of our in force business as of December 31, 2025. Policyholder election behavior is unknown, but if too many policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities. Meeting these distributions could require the Company to sell its investments at inopportune times to pay policyholder withdrawals. Alternatively, if the policyholders were to leave the money on deposit with the Company at interest, our profitability could be impacted if the product guaranteed rate is higher than the market rate we are earning on our investments. We currently anticipate that our available operating cash flow and capital resources will be adequate to meet our needs for funds, and we are closely monitoring our policyholder behavior patterns, and in 2024, introduced a new product designed to allow policyholders with maturing endowments to purchase a new life insurance policy.
Surrenders . Surrender benefits, which have been high the last several years, slightly decreased during 2025. In order to mitigate the risk of early policyholder surrenders, we include provisions in our insurance policies, such as surrender charges, that help limit and discourage early withdrawals, but as many of our policies reach the age where surrender charges have expired or significantly decreased, we have experienced high levels of surrenders. We believe that surrenders have been high due to other reasons, including the loss of one of our biggest distributors in Venezuela in 2018, increasing interest rates, which may encourage policyholders to seek higher rates of return in different investment products, post-pandemic beliefs that life insurance may not be as important as it was during the pandemic, and inflationary pressures, which may cause policyholders to want the cash values of their policies due to decreased purchasing power elsewhere. To the extent that early surrenders are higher than expected, our use of cash could be higher than expected. We continue to monitor surrenders and early withdrawals and focus on our retention initiatives and efforts to retain cash when policyholders surrender their policies.
Our liquidity is also negatively impacted with high matured endowments and surrenders, as they lead to lower renewal premiums.
Death Claims. Our product pricing assumes a certain mortality rate and thus a primary liquidity concern is the risk of higher than expected mortality experience. Our death benefit payments decreased in the year ended December 31, 2025 as compared to 2024, partially as a result of RGA paying a portion of the death benefits pursuant to the RGA Agreement.
Commissions. Another significant use of cash is payment of commissions. In our Domestic Insurance segment, we pay advance commissions on some of our insurance products, meaning we pay an agent a portion of their first-year commission immediately upon sale of a policy, rather than "as earned", or when premiums are received by us. Because of this, another liquidity concern is that rapid growth in first year sales of these products creates a significant increase in commission payments. Since CLOA sales have increased significantly since the third quarter of 2023, in order to offset some of this strain on our capital, we entered into the RGA Agreement in the second quarter of 2024 and elected to cede 50% of our final expense business to RGA. We may also seek other options, such as loans at the holding company level (from the Credit Facility or otherwise) that would allow us to reduce the liquidity risk should required commission payments exceed current resources.
See Part IV. Item 15. Note 8. Commitments and Contingencies , as well as Part I. Item 3. Legal Proceedings - Trade Secret Lawsuit, for a discussion of the trade secret lawsuit, which could negatively impact our cash if we do not succeed in our appeal.
December 31, 2025 | 10-K 46
Table of Contents
CITIZENS, INC.
Regulatory Restrictions on our Use of Cash
As discussed above, we are subject to regulatory capital requirements that could affect the Company’s ability to access capital from our insurance operations or cause the Company to have to put additional cash in our wholly-owned subsidiaries.
Our domestic companies are subject to minimum capital requirements set by the NAIC in the form of risk-based capital ("RBC"). RBC considers the type of business written by an insurance company, the quality of its assets, and various other aspects of an insurance company's business to develop a minimum level of capital called "Authorized Control Level Risk-Based Capital". This level of capital is then compared to an adjusted statutory capital that includes capital and surplus as reported under statutory accounting principles, plus certain investment reserves. Should the ratio of adjusted statutory capital to control level RBC fall below 200% for our domestic companies, a series of remedial actions by the affected company would be required. Additionally, we have a Capital Maintenance Agreement between Citizens and CLOA, Citizens' wholly-owned subsidiary domiciled in Colorado, that would require Citizens to contribute capital to CLOA in order to maintain a RBC level above 350%. At December 31, 2025, our domestic insurance subsidiaries were above the required minimum RBC levels and CLOA was above 350%.
CICA International is a Puerto Rico domiciled company. The Insurance Code of Puerto Rico does not specifically set forth minimum capital and surplus standards, but rather requires that an insurer submit a business plan for approval to the OIC that includes proposed minimum capital and surplus. CICA International is required to maintain a minimum of $750,000 in capital and maintain a premium to surplus ratio of 7 to 1. At December 31, 2025, CICA International exceeded the required minimum capital and related ratio.
Any capital that Citizens is required to contribute to its insurance subsidiaries would negatively impact the holding Company's capital resources and liquidity.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
As a life insurance company, the vast majority of our known contractual and other obligations relate to our future policy benefits payable. These amounts have been projected utilizing assumptions based upon our historical expe rience and anticipated future experience. Because life insurance is a long-duration product, we believe that 81% of our future policy benefit reserves will be payable in more than 5 years, due to the ages of our insureds, years to policy maturity, and our past experience with persistency, claims and surrenders.
Expected timing of those payments and other known obligations are as follows:
Year ended December 31, 2025
(In thousands)
Total
Less than 1
Year
1 to 3 Years
3 to 5 Years
More than 5
Years
Contractual Obligations:
Investment commitments
Real estate leases
Future policy benefit reserves
Policy claims payable
Other obligations
Total contractual obligations
Other Obligations. Other obligations are related to the legal accrual for litigation expense awarded in the trade secret lawsuit, as disclosed in Part I. Item 3. Legal Proceedings and in Part IV. Item 15. Note 8. Commitments and Contingencies of the notes to consolidated financial statements.
The Company does not have off-balance sheet arrangements at December 31, 2025. We do not utilize special purpose entities as investment vehicles, nor do we invest in any such entities that engage in speculative activities of any nature. In addition, we do not hedge our investment positions.
December 31, 2025 | 10-K 47
Table of Contents
CITIZENS, INC.
We have no known material cash requirements other than those described above.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that were uncertain at the time the estimate was made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our consolidated results of operations or financial condition. While we believe that our estimates, assumptions and judgments are reasonable, they are based on information presently available. Changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our financial position or results of operations.
Management has discussed the development and selection of its critical accounting estimates with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure presented. See Part IV. Item 15. Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements for further information on our accounting policies.
VALUATION OF INVESTMENTS IN FIXED MATURITY SECURITIES
Based upon current accounting guidance, investment securities must be classified as held-to-maturity, available-for-sale ("AFS") or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Fixed maturity securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity. The Company currently does not hold any fixed maturity securities classified as held-to-maturity. Fixed maturity securities classified as AFS are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income (loss) and are not reported in earnings until realized. Our fixed maturity securities consist primarily of bonds classified as AFS.
The Company monitors all fixed maturity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews. The Company evaluates whether a credit impairment exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; and (d) the payment structure of the security. The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process. Quantitative review includes information received from third-party sources such as financial statements, pricing and rating changes, liquidity and other statistical information. Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.
The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value. In addition, projections of expected future fixed maturity security cash flows may change based upon new information regarding the performance of the issuer. Any credit losses are presented as an allowance rather than as a write-down of AFS fixed maturity securities.
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs ("DAC") are costs that are incremental and directly related to the successful acquisition of new or renewal insurance contracts. Such costs include the incremental direct costs of contract acquisition, such as sales commissions; the portion of employees’ total compensation and payroll-related fringe benefits related directly to time spent performing acquisition activities, such as underwriting, issuing, and processing
December 31, 2025 | 10-K 48
Table of Contents
CITIZENS, INC.
policies for contracts that have actually been acquired; and other costs related directly to acquisition activities that would not have been incurred if the contract had not been acquired.
Inherent in the capitalization and amortization of DAC are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization. Approximately 92% of our capitalized DAC are attributed to first year and renewal excess commissions. The remaining 8% are attributed to other costs that vary with and are directly related to the successful acquisition of new insurance business. Those costs generally include costs related to the production, underwriting and issuance of new business.
DAC is amortized on a constant level basis over the expected term of the related contracts to approximate straight-line amortization. For CICA International and CLOA, the constant level basis used is policy count in force. For SPLIC, the constant level basis used is face amount in force. The constant level bases used for amortization are projected using mortality and lapse assumptions that are based on the Company’s experience, industry data, and other factors at the end of each reporting period and are consistent with those used for the liability for future policy benefit life reserves. Annually, the Company completes experience studies to evaluate mortality and lapse assumptions. If those assumptions are updated, the DAC amortization basis is recalculated and the impact of the assumption change will be reflected in the cohort level amortization in future periods.
POLICY LIABILITIES
As premium revenue is recognized, a liability for future policy benefits is accrued. The liability for a future policy benefit is the present value of estimated future policy benefits to be paid to or on behalf of policyholders less the present value of estimated future net premiums to be collected from policyholders. The liability is estimated using current assumptions that include investment yields, discount rate, mortality, lapses and withdrawals. These current assumptions are based on judgments that consider the Company’s historical experience, industry data, and other factors. Annually, the Company completes experience studies to evaluate mortality and lapse assumptions. The results of these studies are used to update current year best estimate assumptions used in establishing benefit liabilities and DAC.
The current discount rate assumption is a yield curve that equals the yield of an upper-medium grade fixed income instrument, based on A-quality corporate bonds. The current discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in other comprehensive income. For liability cash flows that are projected beyond the duration of market-observable A credit-rated fixed-income instruments, the Company uses the last market-observable yield level and uses linear interpolation to determine yield assumptions for durations that do not have market observable yields. The locked-in discount rate for policies issued prior to the LDTI transition date equals the rate set at contract issuance. For current year issues, the locked-in discount rate is the average of the current year quarterly discount rates and will change throughout the year as new discount rates are calculated, with the change reflected in net income.
RECENT ACCOUNTING PRONOUNCEMENTS
See Item 8. Financial Statements and Supplementary Data and "Accounting Pronouncements" in Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements.
