Citizens, Inc. Reports Fourth Quarter and Full Year 2011 Results -- Investor conference call scheduled for Tuesday, March 13, at 10 a.m. CDT

AUSTIN, Texas, March 12, 2012 /PRNewswire/ -- Citizens, Inc. (NYSE: CIA) reported results today for the fourth quarter and full year ended December 31, 2011.

Rick D. Riley, Vice Chairman and President, said, "Our 2011 results are strong considering the economic environment in which all insurance companies have been operating. For the year, our consolidated life insurance premiums increased 6%, driven largely by strong persistency and continued expansion in our international business, where endowment products continue to grow in popularity."

Riley added, "Due to the healthy premium growth, we were able to increase invested assets by 15.6% to $839 million from $726 million at year-end 2010. As a result, we reported investment income growth for the fourth quarter and full year as the higher balances offset the lower yields available in this market. With our conservative investment philosophy, our portfolio is currently yielding just over 4% compared with 4.3% in 2010."


(In thousands, except for per share amounts)


Q411


Q410


2011


2010















Premiums

$

43,982


42,131


161,395


152,052



Net investment income

$

8,032


6,181


30,956


30,077



Net realized investment gains

$

724


7,364


765


8,012



Change in fair value of warrants

$

(318)


(148)


1,136


232



Total revenue

$

52,672


55,734


195,013


191,181



Net income applicable to common stock

$

1,129


9,055


8,375


15,511



Net income per diluted share of Class A common stock

$

0.02


0.19


0.17


0.32



Diluted weighted average shares of Class A












common stock


48,958


48,718


48,813


48,688















Operating income

$

976


4,416


6,742


10,071
















"Further, book value per share of Class A common stock increased 11.8% to $5.12 at December 31, 2011, compared with $4.58 at year-end 2010.  The 2011 year-end book value was up $0.02 from September 30, 2011, due to fluctuations in the market values of bonds in our portfolio," Riley said.

Riley commented, "Net realized gains on investments were significantly lower than the prior year. Although we sold previously impaired mutual fund holdings in both years, in 2010 we had additional realized gains on the sale of below investment-grade securities. The sale of those securities allowed us to recover taxes paid on prior year gains and to accomplish consolidated return tax savings.  Despite the substantial reduction in the number of outstanding warrants during 2011, the fair value change of warrants outstanding had a positive effect on results for both 2011 and 2010. We expect the 169,482 remaining warrants will either be exercised or expire in 2012."

Turning to operating income, Riley noted, "By design, our endowment and whole life products should generate equivalent profitability over the long term.  In the near term, however, the strong growth of endowment product sales makes year-over-year comparisons difficult.  The endowment products require initial accumulation of higher reserve balances.  Whole life products, which accumulate initial reserves at a slower pace, were a smaller percentage of new business in 2011.


Reconciliation of Net Income to Operating Income (a non-GAAP measure)



(in thousands, except for per share data)




























Q411


Q410


2011


2010



Net Income

$

1,129


9,055


8,375


15,511
















Items excluded in the calculation of operating income:












Net realized investment (gains) and losses

$

(724)


(7,364)


(765)


(8,012)




Changes in the fair value of warrants


318


148


(1,136)


(232)



Pre tax effect of exclusions


(406)


(7,216)


(1,901)


(8,244)



Tax effect at 35%


253


2,577


268


2,804



Operating income

$

976


4,416


6,742


10,071

















Non-GAAP Financial Measures - The table above reconciles Net Income to Operating Income. Operating Income is a "Non-GAAP" financial measure that is widely used in our industry to evaluate the performance of underwriting operations. Operating Income excludes the Fair Value Changes of Warrants and the after-tax net effects of Net Realized Investment Gains and Losses. We believe it presents a useful view of the performance of our insurance operations. While we believe disclosure of certain Non-GAAP information is appropriate, you should not consider this information without also considering the information we present in accordance with GAAP.

Riley added, "In addition, the prolonged low interest rate environment is affecting our reserve development assumptions. Because of assumption changes for policies issued in 2011, fourth quarter results reflect an approximately $0.8 million increase in policy reserves and $1.4 million increase in amortization of deferred acquisition costs.  Final assumptions used for the fourth quarter and the full year reflect the lower investment yield that resulted in 2011."

INSURANCE OPERATIONS

  • Life Insurance - Our Life Insurance segment primarily issues ordinary whole life insurance in U.S. Dollar-denominated amounts to foreign residents in approximately 30 countries through approximately 2,300 independent marketing consultants, and domestically through almost 300 independent marketing firms and consultants throughout the United States.
    • Premiums – Life insurance premium revenues increased for the fourth quarter and full year of 2011, due to higher international renewal premiums, which have experienced strong persistency as this block of business ages.  First year premiums also increased in the current year, reflecting improved new business performance.  Sales from Colombia, Ecuador, Taiwan, and Venezuela represented the majority of the first year premium increase. In addition, most of our life insurance policies contain a policy loan provision, which allows the policyholder to utilize cash value of a policy to pay premiums and keep policies in force. The policy loan asset balance in the life insurance segment increased 10.5% year over year.  
    • Benefits and expenses – Life insurance benefits and expenses increased more rapidly than premiums for the fourth quarter and full year of 2011 primarily because endowment products require accumulation of higher reserve balances on the front end when compared to whole life products. In addition, general expenses increased in 2011 as part of allocations based upon routine time studies, resulting in approximately $1.5 million higher current year expenses versus the prior year. Amortization of deferred acquisition costs decreased by 2.9% as improved persistency lowered amortization but it was largely offset by $1 million of increased amortization expense related to the assumption changes for lower long-term portfolio yield on new issued business.

  • Home Service - Our Home Service Insurance segment provides pre-need and final expense ordinary life insurance and annuities to middle and lower income individuals primarily in Louisiana, Mississippi and Arkansas.  Our policies in this segment are sold and serviced through funeral homes and a home service marketing distribution system utilizing approximately 530 employees and independent agents.
    • Premiums – Home service premiums increased 2.7% from the 2010 results, inclusive of a rate increase of approximately 5.8% for Security Plan Fire Insurance Company that became effective January 1, 2011.
    • Benefits and expenses – Home service benefits and expenses increased by 10.4% for the fourth quarter, but were essentially unchanged for the full year of 2011.  Claims and surrenders were down 2.3% from 2010 reported amounts, which had a positive impact on results, as did the lower allocation for general expenses. Current year results were negatively impacted by an increase in amortization of deferred acquisition expenses resulting from the assumption changes for new issued business relating to the anticipated lower long-term portfolio yield and a high lapse rate experienced in 2011 compared to 2010.

INVESTMENTS

  • Invested assets – Total invested assets grew 15.6% in 2011, reflecting additional premium income from new and renewal business over the past year.  
    • Fixed maturity securities represented 88.4% of the portfolio at year-end 2011, compared with 90.4% at year-end 2010.  
    • Equity security holdings increased to $46.1 million at year-end 2011 from $23.3 million at year-end 2010 as bond proceeds of approximately $31.5 million were reinvested into bond mutual funds to gain additional yield via shorter duration opportunities.
    • Cash and cash equivalents represented 3.8% of total cash, cash equivalents and invested assets at year-end 2011, down from 6.4% in 2010, reflecting the timing of calls and reinvestment.

  • Investment income – Net investment income increased 29.9% for the quarter ended December 31, 2011, and 2.9% for the full-year.  The gains were primarily due to higher average investment balances that offset the lower yields on invested assets.  The policy loan asset balance increased by 9.8% in 2011, resulting in an increase in policy loan income, a component of investment income.
    • Yield - During 2011, average invested assets increased 10.2% while average yield declined to 4.03% compared with 4.32% in 2010.  The average yield for the quarter ended December 31, 2011, was 4.09% compared to 3.47% for the quarter ended December 31, 2010.  
    • Duration - Significant calls by issuers of fixed maturity securities have led to the reinvestment of proceeds at lower yields as market rates have declined.  During 2011, the Company continued significant investment in bonds of U.S. Government-sponsored enterprises.  Additionally, the Company made investments in investment-grade corporate, municipal bonds and shorter duration bond mutual funds to obtain higher yields.  The average maturity of the fixed income bond portfolio was 13.6 years with an estimated effective maturity of 5.7 years as of December 31, 2011.

  • Realized gains – In 2011 and 2010, the Company sold equity mutual funds, which were previously impaired, and other securities for realized gains of $1.3 million and $6.4 million for tax considerations, respectively.  In addition, we realized net gains of $1.3 million in 2010 on sales of securities from an acquired entity that were primarily below investment grade quality.

INVESTOR CONFERENCE CALL

On Tuesday, March 13, Citizens will host a conference call to discuss operating results at 10 a.m. Central Time.  The conference call will be hosted by Rick D. Riley, Vice Chairman and President, Kay Osbourn, Chief Financial Officer, and other members of the Company's management team.  To participate, please dial 888-637-2456 and ask to join the Citizens, Inc. call.  We recommend accessing the call three to five minutes before the call is scheduled to begin.  A recording of the conference call will be available on Citizens' website at www.citizensinc.com in the Investor Information section under News Release & Publications following the call.

ABOUT CITIZENS, INC.

Citizens, Inc. is a financial services company listed on the New York Stock Exchange under the symbol CIA.  The Company utilizes a three-pronged strategy for growth based upon worldwide sales of U.S. Dollar-denominated whole life cash value insurance policies, life insurance product sales in the U.S. and the acquisition of other U.S. based life insurance companies.

SAFE HARBOR

Information herein contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by words such as "may," "will," "expect," "anticipate" or "continue" or comparable words. In addition, all statements other than statements of historical facts that address activities that the Company expects or anticipates will or may occur in the future are forward-looking statements.  Readers are encouraged to read the SEC reports of the Company, particularly its Form 10-K for the fiscal year ended December 31, 2011, its quarterly reports on Form 10Q and its current reports on Form 8-K, for the meaningful cautionary language disclosing why actual results may vary materially from those anticipated by management.  The Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in the Company's expectations.  The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by the investment community.

FOR FURTHER INFORMATION CONTACT:
Kay Osbourn
Chief Financial Officer
(512) 837-7100
PR@citizensinc.com


Consolidated Statements of Operations

(In thousands, except per share amounts)
















Three Months Ended


Twelve Months Ended  





December 31,


December 31,
















2011


2010


2011


2010

Revenues:










Premiums:











Life insurance


$    42,297


40,551


154,778


145,665



Accident and health insurance


410


362


1,561


1,577



Property insurance


1,275


1,218


5,056


4,810


Net investment income


8,032


6,181


30,956


30,077


Realized investment gains, net


724


7,364


765


8,012


Decrease (increase) in fair value of warrants  

(318)


(148)


1,136


232


Other income


252


206


761


808

Total revenues


52,672


55,734


195,013


191,181












Benefits and expenses:










Insurance benefits paid or provided:











Claims and surrenders


15,469


14,628


60,056


61,038



Increase in future policy benefit reserves

18,581


15,694


58,264


46,420



Policyholders’ dividends


2,321


2,161


8,072


7,485


Total insurance benefits paid or provided


36,371


32,483


126,392


114,943


Commissions


10,148


10,200


38,374


36,585


Other general expenses

6,511


6,523


26,897


27,085


Capitalization of deferred policy acquisition costs

(7,263)


(8,014)


(29,433)


(27,960)


Amortization of deferred policy acquisition costs

5,371


3,878


18,620


17,840


Amortization of cost of customer relationships









     acquired

885


747


2,998


3,058












Total benefits and expenses


52,023


45,817


183,848


171,551












Income before income tax expense


649


9,917


11,165


19,630

Income tax expense (benefit)


(480)


862


2,790


4,119


Net income


$      1,129


9,055


8,375


15,511












Per Share Amounts:










Basic earnings per share of Class A common stock


$        0.01


0.19


0.17


0.32


Basic earnings per share of Class B common stock


$        0.01


0.09


0.08


0.16


Diluted earnings per share of Class A common stock

$        0.02


0.19


0.17


0.32


Diluted earnings per share of Class B common stock

$        0.02


0.09


0.08


0.16














Consolidated Statements of Financial Position

December 31,

(In thousands)











Assets

2011


2010








Investments:





Fixed maturities available-for-sale, at fair value






(cost:  $484,809 and $578,412 in 2011 and 2010, respectively)

$     514,253


575,737


Fixed maturities held-to-maturity, at amortized cost






(fair value:  $230,093 and $79,103 in 2011 and 2010, respectively)

227,500


80,232


Equity securities available-for-sale, at fair value






(cost:  $45,599 and $19,844 in 2011 and 2010, respectively)

46,137


23,304


Mortgage loans on real estate

1,557


1,489


Policy loans

39,090


35,585


Real estate held for investment (less $1,149 and $1,017 accumulated




depreciation in 2011 and 2010, respectively)

8,539


9,200


Other long-term investments

105


148


Short-term investments

2,048


-

Total investments

839,229


725,695

Cash and cash equivalents

33,255


49,723

Accrued investment income

7,787


7,433

Reinsurance recoverable

9,562


9,729

Deferred policy acquisition costs

136,300


125,684

Cost of customer relationships acquired

27,945


31,631

Goodwill

17,160


17,160

Other intangible assets

906


1,019

Federal income tax receivable

901


1,914

Property and equipment, net

7,860


7,101

Due premiums, net (less $1,698 and $1,568 allowance for doubtful




accounts in 2011 and 2010, respectively)

9,169


8,537

Prepaid expenses

396


474

Other assets

800


406

Total assets

$ 1,091,270


986,506







(Continued)



Consolidated Statements of Financial Position, Continued

December 31,

(In thousands)











Liabilities and Stockholders’ Equity

2011


2010








Liabilities:






Future policy benefit reserves:






Life insurance

$    697,502


$    637,140



Annuities

47,060


42,096



Accident and health

5,612


5,910


Dividend accumulations

10,601


9,498


Premiums paid in advance

25,291


23,675


Policy claims payable

10,020


10,540


Other policyholders’ funds

8,760


8,191

Total policy liabilities

804,846


737,050


Commissions payable

2,851


2,538


Deferred federal income taxes

18,055


9,410


Warrants outstanding

451


1,587


Other liabilities

9,382


8,287

Total liabilities

835,585


758,872

Commitments and contingencies




Stockholders’ equity:





Common stock:






Class A, no par value, 100,000,000 shares authorized,







52,089,189 shares issued and outstanding in 2011 and 2010,

including shares in treasury of 3,135,738 in 2011 and 2010

258,548


256,703



Class B, no par value, 2,000,000 shares authorized,







1,001,714 shares issued and outstanding in 2011 and 2010

3,184


3,184


Accumulated deficit

(14,208)


(22,581)


Accumulated other comprehensive income:






Unrealized gains on securities, net of tax

19,172


1,339


Treasury stock, at cost

(11,011)


(11,011)

Total stockholders’ equity

255,685


227,634

Total liabilities and stockholders’ equity

$ 1,091,270


986,506



SOURCE Citizens, Inc.



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