Citizens(CIA) - 2024 Q4 - Annual Report

International Operations and Risks - Approximately 67% of the company's direct insurance premiums are generated from policyholders in foreign countries, primarily in Latin America and the Pacific Rim [76]. - The company faces significant international regulatory risks, as it does not register to do business in foreign countries and relies on independent consultants for sales [77]. - The company only sells U.S. dollar-denominated products, which may be adversely affected by currency control laws in foreign countries [81]. - Political instability in many operating countries could negatively impact policyholder premium payments and new product sales [82]. - The company has developed an anti-money laundering program to mitigate risks associated with high-risk jurisdictions, such as Colombia and Venezuela [86]. Financial and Liquidity Risks - Higher than expected policyholder claims related to unforeseen events, such as pandemics, could severely disrupt operations and financial condition [95]. - Unanticipated early policyholder withdrawals or surrenders pose a liquidity risk, potentially leading to increased volatility in results [96]. - The company faces potential liquidity risks if policyholders with mature policies opt for lump sum distributions at higher levels than anticipated, particularly with a significant amount of aging endowment products reaching maturity [97]. - Unanticipated early withdrawals or greater than expected lump sum distributions could force the company to sell investments or seek third-party financing, adversely affecting liquidity and financial condition [98]. - The company is subject to regulatory risks that could impact cash flow and financial condition, including the need to maintain minimum capital and surplus requirements [104][109]. - A capital maintenance agreement with the Colorado Division of Insurance requires the company to ensure that CICA Domestic's Risk-Based Capital (RBC) remains above 350%, which could strain capital resources [111]. - The company pays advance commissions on some insurance products, which increases expenses and reduces statutory capital until commissions are recouped, potentially leading to cash flow strain [112]. - The company’s ability to pay dividends or service payments is dependent on its insurance subsidiaries, which are subject to regulatory approval and minimum capital requirements [113]. Market and Economic Conditions - Economic conditions such as inflation or recession could lead to decreased new sales and increased lapses, adversely affecting premium revenue and benefit expenses [120]. - Market volatility, particularly declining equity markets, negatively impacted the fair market value of equity securities, leading to investment-related losses that adversely affected GAAP operating revenue and profitability [122]. - Low or declining interest rates have led to reduced net investment income and low yields due to reinvestment in lower interest rate bonds [122]. - Rising interest rates may reduce the market values of fixed income assets, leading to material unrealized losses and negatively affecting stockholders' equity [122]. Distribution and Sales Risks - The company relies on a small number of foreign agencies for distribution, which may impact its ability to attract effective sales representatives [83]. - The company relies heavily on independent marketing agencies for product distribution, and any loss of these relationships could negatively impact sales and policy retention [100]. - A downgrade by rating agencies could limit the ability to attract independent insurance agencies and reduce product attractiveness to consumers [119]. Technology and Cybersecurity Risks - The company relies on its technology systems to operate its business, and any failure in these systems could materially adversely impact business operations and financial condition [131]. - Significant resources are devoted to maintaining and enhancing information technology systems to protect against cybersecurity risks [128]. - The company may face litigation and financial losses from cyber risks that exceed its insurance policy limits [130]. Shareholder and Regulatory Considerations - The company has approximately 83,000 shareholders, with about 40% holding less than 100 shares each, which may complicate obtaining approval for corporate actions [132]. - The Class A common stock is not registered in any foreign country, which could negatively impact its price if foreign regulatory authorities impose penalties [133]. - Insurance laws in the jurisdictions where the company's insurance subsidiaries are domiciled may discourage takeovers and business combinations that shareholders might consider beneficial [134].