Citizens(CIA) - 2019 Q4 - Annual Report

Financial Performance - As of December 31, 2019, Citizens, Inc. had approximately $1.7 billion in assets and $4.2 billion in insurance in force[17]. - Total assets grew by 8.0%, or $129 million, reaching $1.7 billion as of December 31, 2019[217]. - Total stockholders' equity increased by 38.4% from $187.7 million at December 31, 2018, to $259.8 million at December 31, 2019, primarily due to net unrealized gains on available-for-sale securities of $71.8 million[217]. - Insurance premiums declined by 1.9% in 2019, totaling $184.3 million compared to $187.9 million in 2018, driven by fewer renewal premiums in the Life Insurance segment[217]. - First year premiums in the Life Insurance segment increased by 2.1% in 2019, reflecting growth following investments in sales and marketing activities[217]. Insurance Premiums and Segments - International direct premiums comprised approximately 96% of total direct premiums in the Life Insurance segment and 71% of total direct premiums overall in 2019[26]. - The Home Service Insurance segment accounted for 25% of total direct premiums in 2019[39]. - Domestic direct premiums represented approximately 4% of total direct premiums in the Life Insurance segment and 3% of total direct premiums overall in 2019[35]. Technology and Operations - The Company is reviewing technology options to transition from its legacy administration system to a modernized technology platform[45]. - The Company maintains a single integrated information technology system that has been in place for over 30 years and is undergoing ongoing updates[44]. - Citizens, Inc. is focusing on expanding distribution and issuing newly enhanced products in 2020 in response to the low interest rate environment[31]. Regulatory Compliance and Risks - The company is subject to comprehensive regulations under various U.S. laws, including the USA Patriot Act and the Dodd-Frank Act[53]. - The company faces significant regulatory risks related to foreign insurance sales, which may adversely affect its operations and financial condition[75]. - A comprehensive compliance review confirmed risks associated with foreign insurance laws, indicating a lack of uniform regulation and clarity in certain jurisdictions[76]. - Regulatory compliance in Bermuda is critical, as failure to adhere to local laws could result in increased costs and operational restrictions[89]. - The company is exploring alternatives to its current business model in response to regulatory challenges in foreign markets[79]. Investment Portfolio and Risks - As of December 31, 2019, fixed maturities accounted for $1.4 billion, or 93.1% of total investments of $1.5 billion[99]. - Approximately 98.8% of fixed maturities were investment grade, with 69.3% rated A or above[99]. - The company may face credit risk in its investment portfolio, with potential defaults impacting investment income and leading to realized losses[98]. - The company evaluates its investment portfolio for impairments, which may require additional impairments in the future[101]. - The primary investment objective is to maximize economic value while managing credit risk and interest rate sensitivity of invested assets[213]. Employee and Operational Risks - Citizens, Inc. employs over 400 individuals, with more than half working in the Home Service segment[22]. - The competitive market for qualified personnel poses a risk to the company's operational success, as losing key employees could adversely affect its business[181]. - The company faces risks related to the classification of independent contractors, which could lead to significant costs if reclassified as employees[130]. Financial Liabilities and Dividends - The company has never paid cash dividends on its Class A or B common stock and does not expect to do so in the foreseeable future[195]. - The estimated liability related to tax issues with the IRS is approximately $10.0 million, with a range of $7.4 million to $52.5 million net of tax[214]. Risk Management and Governance - The Audit Committee of the Board oversees major financial risk exposures and management's steps to monitor and control these risks[50]. - The company has implemented various controls to manage risks associated with its operations, but there is no assurance that these will be fully effective[165]. - Damage to the company's reputation could hinder its ability to compete effectively and raise new capital, adversely affecting its financial condition[166]. Market and Economic Risks - The company is exposed to risks from low interest rates, which may reduce net investment income and affect reserve calculations for insurance products[90][91]. - Approximately 51% of the company's fixed maturity bond portfolio is callable, with 17% callable within the next year, increasing reinvestment risk in a low interest rate environment[93]. - Unfavorable market conditions could challenge the company's ability to obtain financing, impacting liquidity and credit capacity[157]. - Political instability in operating countries could impact policyholder premium payments and the company's ability to sell policies, potentially leading to higher claims and lapses[81]. - Catastrophic events may cause substantial volatility in financial results and harm profitability, particularly in heavily populated areas[83].