Citizens, Inc. Reports Third Quarter and Nine Months 2013 Results

Investor Conference Call Scheduled for November 7, 2013, at 11:00 a.m. CST

Nov 06, 2013, 16:25 ET from Citizens, Inc.

AUSTIN, Texas, Nov. 6, 2013 /PRNewswire/ -- Citizens, Inc. (NYSE: CIA) reported results today for the third quarter and nine months ended September 30, 2013.

Rick D. Riley, Vice Chairman and President, said, "Citizens recorded another solid quarter highlighted by continued growth in life insurance segment premium revenues and a higher yield on our fixed maturity securities portfolio. Nine-month operating income continues ahead of the same period in 2012, although third-quarter results are down as compared to the same period in 2012 driven by  increased surrender expenses in our life insurance segment and increased death claims in our home service segment. Total premiums rose 1.9% and 3.9% for the three and nine month periods ending September 30, 2013, as compared to the corresponding periods in 2012, with new life segment international insurance sales growth reflecting the market's continued interest in our endowment products."

Riley added, "New premium revenue drove invested asset growth while the consolidated investment yield improved to 4.10% compared to 3.81% for the full year of 2012.  As a result, investment income rose 17.9% and 16.8% for the three and nine month periods ended September 30, 2013, as compared to the corresponding periods in 2012.  Book value per share of Class A common stock was $4.95 at September 30, 2013, reflecting interest-rate driven mark-to-market adjustments."

FOR THE PERIODS ENDED SEPTEMBER 30,

Q3 2013

Q3 2012

YTD 2013

YTD 2012

(Unaudited, In thousands, except for per share amounts)

Premiums

$

43,747

42,952

128,521

123,644

Net investment income

9,570

8,114

27,224

23,303

Net realized investment gains

30

763

143

1,107

Change in fair value of warrants

241

314

Total revenue

53,616

52,182

156,770

148,689

Net income applicable to common stock

1,824

2,911

3,987

4,826

Net income per diluted share of Class A common stock

0.03

0.06

0.08

0.10

Diluted weighted average shares of Class A common stock

49,080

49,030

49,080

48,972

Operating income

$

1,805

2,174

3,894

3,792

Mr. Riley also observed, "During October, we entered into a purchase agreement with Magnolia Guaranty Life Insurance to acquire the company for $5.2 million. We are conducting our due diligence at this time and expect to close the transaction in the fourth quarter of 2013.  Magnolia is a Mississippi company that began writing industrial life insurance policies in Mississippi in 1992.  The Company had approximately $8.0 million of  assets at December 31, 2012 with approximately $60 million of life insurance in force.  Magnolia's 2012 statutory net premiums were approximately $2.1 million and its capital and surplus totaled nearly $2.3 million."

"We are continuing to review acquisition targets and situations as they come to us and we are optimistic about the potential for additional transactions in the current market," Riley noted. "Driven by our founder's original vision, Citizens reached $1 billion in assets in 2011, 42 years after the company was formed. Our goal now is to reach $2 billion in assets by the year 2020, one-quarter of the time it took to reach the first billion."

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

FOR THE PERIODS ENDED SEPTEMBER 30,

Q3 2013

Q3 2012

YTD 2013

YTD 2012

(Unaudited, In thousands)

Net income

$

1,824

2,911

3,987

4,826

Items excluded in the calculation of operating income:

Net realized investment gains

(30)

(763)

(143)

(1,107)

Change in fair value of warrants

(241)

(314)

Pre-tax effect of exclusions

(30)

(1,004)

(143)

(1,421)

Tax effect at 35%

11

267

50

387

Operating income

$

1,805

2,174

3,894

3,792

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.

INSURANCE OPERATIONS

  • Life Insurance – Our Life Insurance segment primarily issues ordinary whole life insurance and endowments in U.S. Dollar-denominated amounts to foreign residents in approximately 30 countries through independent marketing consultants, and domestically through independent marketing firms and consultants across the United States.
    • Premiums – Life insurance premium revenues increased for the three and nine months of 2013, due to higher international renewal premiums, as we continue to experience strong persistency.  In addition, new sales decreased 5.9% for the three months primarily due to lower business generated from Venezuela and Colombia, but increased 8.8% for the nine months ended in 2013 compared to 2012.  Endowment sales continue to be the preferred product internationally representing approximately 79% of first year premiums in the three months ended September 30, 2013.  Top selling products were our endowment to age sixty-five and the twenty-year endowment offerings.
    • Benefits and expenses – Total life insurance benefits and expenses rose in line with premium growth for the three and nine months of 2013 compared to the same period in 2012. Future policy benefit reserves increased as endowment products accumulate higher reserve balances on the front end when compared to whole life products.  We are also continuing to recognize the effect of the current low interest rate environment on reserves for policies issued. We have noted higher reported claims for the three months ended in 2013 compared to 2012 but reported claims are lower for the nine months ended compared to the prior year levels which is positively impacting the current year to date earnings.  In addition, commission expense increased as first year sales expanded and renewal premium remained strong.
  • 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 employees and independent agents.
    • Premiums – Home service premiums are lower for the three and nine month periods ended in 2013 compared to 2012. We expect full-year 2013 sales levels for this business segment to be in line with the levels reported last year as we do experience some seasonality with premiums trending down in the third quarter.
    • Benefits and expenses – Claims and surrenders increased 1.8% and 4.1% for the three and nine months of 2013. Death claims were higher for the nine months ended September 30, 2013, and last year's nine month results included the release of an incurred but not reported liability for death claims of $0.5 million. Third quarter and nine-month results for 2012 results also reflected $0.5 million in losses related to Hurricane Isaac.   In addition, amortization of deferred acquisition costs for this segment rose from last year, as the 2012 results included an adjustment of $0.4 million that lowered amortization costs.

CICA Life Insurance Company of America, Citizens' largest life insurance subsidiary, was named to the 2013 Ward's 50 Top Performing Life-Health Insurance Companies List. Ward Group is a trusted leader of benchmarking and practices services for the insurance industry.  Based upon Ward's annual analysis of the life and health industry, CICA Life was recognized for achieving outstanding financial results in the areas of safety, consistency and performance over the eight year period of 2005-2012 according to Ward's recent announcement (available at www.wardinc.com).  This was CICA Life's second consecutive year to be named to this prestigious list and Ward's 23rd consecutive year of conducting this independent analysis.

Results for the non-insurance segment have fluctuated over the past several years due to the change in fair value of warrants. This segment represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under GAAP. 

INVESTMENTS

  • Invested assets – Total invested assets increased from year-end 2012 as new premium revenues were invested in bonds while policy loans also rose.
    • Fixed maturity securities represented 88.2% of the investment portfolio at September 30, 2013, compared with 87.9% at year-end 2012.
    • Equity security holdings decreased to $53.1 million at September 30, 2013 from $53.7 million at year-end 2012 due to decreases in fair value of equity bond mutual funds as interest rates rose.
    • Cash and cash equivalents represented 4.3% of total cash, cash equivalents and invested assets at September 30, 2013, down from 5.9% at year-end 2012, reflecting the timing of calls of securities owned and of investment and reinvestment of new premium revenues and other available funds.
  • Investment income – Net investment income increased 17.9% and 16.8% for the three and nine months ended September 30, 2013 compared to the same periods in 2012. This is primarily due to an increase in overall invested assets from premium collections received and invested in fixed maturity bonds, and the increase in the overall consolidated portfolio yield by 33 basis points compared to the nine months ended in 2012.  The policy loan asset balance increased by 10.2% in 2013, resulting in an increase in policy loan income, a component of investment income.
    • Yield – Average annualized yield was 4.10% for the nine months of 2013 compared to 3.81% for the full year of 2012.
    • Duration – The average maturity of the fixed income bond portfolio was 12 years with an estimated effective maturity of 7 years as of September 30, 2013.

 

INVESTOR CONFERENCE CALL

On Thursday, November 7, 2013, Citizens will host a conference call to discuss operating results at 11:00 a.m. Central Standard 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 888-503-8169 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, 2012, its quarterly reports on Form 10-Q 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.

 

 

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

Three Months Ended September 30,

2013

2012

(Unaudited)

Revenues:

Premiums:

Life insurance

$

42,091

41,257

Accident and health insurance

380

414

Property insurance

1,276

1,281

Net investment income

9,570

8,114

Realized investment gains, net

30

763

Decrease in fair value of warrants

241

Other income

269

112

Total revenues

53,616

52,182

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders

16,763

15,627

Increase in future policy benefit reserves

17,398

16,901

Policyholders' dividends

2,362

2,600

Total insurance benefits paid or provided

36,523

35,128

Commissions

9,940

9,769

Other general expenses

6,163

6,055

Capitalization of deferred policy acquisition costs

(7,067)

(7,547)

Amortization of deferred policy acquisition costs

4,758

4,134

Amortization of cost of customer relationships acquired

681

598

Total benefits and expenses

50,998

48,137

Income before federal income tax

2,618

4,045

Federal income tax expense

794

1,134

Net income

1,824

2,911

Per Share Amounts:

Basic earnings per share of Class A common stock

$

0.03

0.06

Basic earnings per share of Class B common stock

0.02

0.03

Diluted earnings per share of Class A common stock

0.03

0.06

Diluted earnings per share of Class B common stock

0.02

0.03

Other comprehensive income (loss):

Unrealized gains (losses) on available-for-sale securities:

Unrealized holding gains (losses) arising during period

(4,128)

8,542

Reclassification adjustment for gains included in net income

(84)

(708)

Unrealized gains (losses) on available-for-sale securities, net

(4,212)

7,834

Income tax expense (benefit) on unrealized gains (losses) on available-for-sale securities

(1,474)

2,878

Other comprehensive income (loss)

(2,738)

4,956

Comprehensive income (loss)

$

(914)

7,867

 

 

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

Nine Months Ended September 30,

2013

2012

(Unaudited)

Revenues:

Premiums:

Life insurance

$

123,728

118,608

Accident and health insurance

1,135

1,244

Property insurance

3,658

3,792

Net investment income

27,224

23,303

Realized investment gains, net

143

1,107

Decrease in fair value of warrants

314

Other income

882

321

Total revenues

156,770

148,689

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders

48,229

46,490

Increase in future policy benefit reserves

52,253

47,793

Policyholders' dividends

6,671

6,755

Total insurance benefits paid or provided

107,153

101,038

Commissions

29,427

28,164

Other general expenses

20,204

19,013

Capitalization of deferred policy acquisition costs

(21,101)

(20,530)

Amortization of deferred policy acquisition costs

13,747

12,693

Amortization of cost of customer relationships acquired

1,819

1,834

Total benefits and expenses

151,249

142,212

Income before federal income tax

5,521

6,477

Federal income tax expense

1,534

1,651

Net income

3,987

4,826

Per Share Amounts:

Basic earnings per share of Class A common stock

$

0.08

0.10

Basic earnings per share of Class B common stock

0.04

0.05

Diluted earnings per share of Class A common stock

0.08

0.10

Diluted earnings per share of Class B common stock

0.04

0.05

Other comprehensive income (loss):

Unrealized gains (losses) on available-for-sale securities:

Unrealized holding gains (losses) arising during period

(29,576)

17,106

Reclassification adjustment for gains included in net income

(188)

(915)

Unrealized gains (losses) on available-for-sale securities, net

(29,764)

16,191

Income tax expense (benefit) on unrealized gains (losses) on available-for-sale securities

(10,400)

5,837

Other comprehensive income (loss)

(19,364)

10,354

Comprehensive income (loss)

$

(15,377)

15,180

 

 

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Financial Position

(In thousands)

September 30,

December 31,

2013

2012

(Unaudited)

Assets:

Investments:

Fixed maturities available-for-sale, at fair value

$

599,379

604,520

Fixed maturities held-to-maturity, at amortized cost

223,339

187,008

Equity securities available-for-sale, at fair value

53,067

53,741

Mortgage loans on real estate

680

1,509

Policy loans

47,359

42,993

Real estate held for investment

8,477

8,496

Other long-term investments

56

57

Short-term investments

2,340

Total investments

932,357

900,664

Cash and cash equivalents

41,687

56,299

Accrued investment income

11,740

10,304

Reinsurance recoverable

4,490

9,651

Deferred policy acquisition costs

143,131

135,569

Cost of customer relationships acquired

23,901

25,116

Goodwill

17,160

17,160

Other intangible assets

858

879

Federal income tax receivable

270

Property and equipment, net

6,920

7,383

Due premiums, net

9,994

10,527

Prepaid expenses

875

344

Other assets

1,001

782

Total assets

$

1,194,114

1,174,948

(Continued)

 

 

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Financial Position, Continued

(In thousands)

September 30,

December 31,

2013

2012

(Unaudited)

Liabilities:

Policy liabilities:

Future policy benefit reserves:

Life insurance

$

812,824

762,319

Annuities

54,178

51,750

Accident and health

1,245

5,491

Dividend accumulations

13,234

11,962

Premiums paid in advance

30,504

27,455

Policy claims payable

8,044

11,015

Other policyholders' funds

8,006

9,440

Total policy liabilities

928,035

879,432

Commissions payable

2,096

2,606

Federal income tax payable

415

Deferred federal income tax

4,517

17,301

Payable for securities in process of settlement

1,712

2,358

Other liabilities

9,608

10,143

Total liabilities

946,383

911,840

Stockholders' equity:

Class A, common stock

259,383

259,383

Class B, common stock

3,184

3,184

Accumulated deficit

(13,348)

(17,335)

Accumulated other comprehensive income:

Unrealized gains on securities, net of tax

9,523

28,887

Treasury stock, at cost

(11,011)

(11,011)

Total stockholders' equity

247,731

263,108

Total liabilities and stockholders' equity

$

1,194,114

1,174,948

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

SOURCE Citizens, Inc.



RELATED LINKS

http://www.citizensinc.com