Citizens, Inc. Reports Third Quarter 2011 Results

Thu Nov 3, 2011 4:30pm EDT

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Citizens, Inc. Reports Third Quarter 2011 Results

-- Investor conference call scheduled for Friday, November 4, 2011, at 10 a.m. CDT

PR Newswire

AUSTIN, Texas, Nov. 3, 2011 /PRNewswire/ -- Citizens, Inc. (NYSE: CIA) today reported results for the third quarter ended September 30, 2011.

Rick D. Riley, Vice Chairman and President, said, "Third quarter results continued the trends reported in the first half of 2011, with premium income up 5.9% and 6.8% for the three and nine month periods compared to 2010 results. Both our Life and Home Service segments contributed to the overall premium income increase.

Investment yields appear to be leveling off following the significant interest rate declines seen over the past several years.  Citizens' consolidated annualized yield for the first nine months of 2011 was 4.11%.  Growth in the invested asset portfolio from increased premium revenues led to higher investment income for the third quarter, with asset growth outpacing the portfolio yield decline."


(In thousands, except per share amounts)

QTR11

QTR10

YTD11

YTD10

Premiums

40,299

38,055

117,413

109,921

Net investment income

7,693

7,272

22,924

23,896

Net realized investment gains (losses)

35

(103)

41

648

Decrease in fair value of warrants

239

128

1,454

380

Total revenues

48,548

45,455

142,341

135,447

Net income applicable to common stock

2,223

1,666

7,246

6,456

Net income per diluted share of Class A common stock

0.05

0.03

0.15

0.13

Weighted average shares of Class A common stock (diluted)

48,912

48,687

48,764

48,687




Consolidated results

  • Total revenues – Total revenues increased 6.8% and 5.1% for the three and nine months ended September 30, 2011, primarily reflecting the growth in premiums.  Excluding the change in fair value of warrants, revenues increased 6.6% and 4.3% for the same periods.
  • Net income – Net income increased 33.4% and 12.2% for the three and nine months ended September 30, 2011.  Realized investment gains (losses), net of tax and change in the fair value of warrants combined to increase net income by $0.3 million, or $0.01 per share of diluted Class A common stock and $1.5 million, or $0.03 per share, for the quarter and year ending September 30, 2011.  The effect of these items was insignificant for the third quarter of 2010 and increased net income by $1.0 million, or $0.02 per share, for the nine months of 2010.  
  • Book value – Book value per share increased 6.9% to $5.10 at September 30, 2011, compared with $4.77 at September 30, 2010, reflecting net income and portfolio appreciation.

Insurance operations

  • Life insurance – Total premiums increased 7.2% and 8.5% for the three and nine months of 2011 compared to the same periods in 2010.  Income before income taxes for the nine month period declined primarily because of an increase in future policy benefit reserves expense and an increase in other general expenses due to an annual allocation review adjustment of expenses.  For the nine months ended 2011, the decline also reflected lower investment income.  Income for the three month period was up as investment income increased and claims and surrenders decreased.
    •  Life first-year premiums declined approximately 5% in the third quarter while increasing approximately 11% for the nine months ended September 30, 2011. Sales remained strong internationally with Colombia, Venezuela and Taiwan continuing as the top producing countries.  Premiums from Venezuela rose approximately 28% year to date with total direct premiums collected of $14.8 million compared to $11.6 million during the nine months of 2010.  International persistency trends also remained favorable with renewals accounting for 85% of premiums for the nine months of 2011 and 2010.
    •  Our international clients' focus on contract guarantees is driving higher endowment sales, which now represent approximately 75% of international new business compared to 57% in 2010.  The increase in future policy benefit reserves correlates to the increase in endowment sales, which produce a faster reserve build up than whole life products.
  • Home service – Premiums increased 2.5% and 2.6% for the three and nine month periods compared to 2010, as sales continued to pace at 2010 levels.  Income before taxes for the third quarter decreased to $1.2 million compared to $1.3 million in third quarter of last year, primarily due to an increase in reserves and an increase in deferred policy acquisition costs amortization.  Income before taxes for the nine months increased to $5.5 million compared with $4.5 million, due to favorable claim experience and a reduction in general expense allocations. The expense allocation adjustments were implemented at the beginning of the current year following a periodic review of assumptions.
    •  Death claims were down 13.0% and 11.6% for the three and nine months in 2011 due to favorable experience.  Property casualty losses for the three and nine month periods related to weather events in the Company's home service markets were within normal levels.  Property casualty claims reported in 2010 had lower than expected claim averages, which also affected comparability between periods.

Investments

  • Invested assets – Total invested assets grew to $792.3 million at September 30, 2011, from $725.7 million at December 31, 2010.  Fixed maturity securities represent a significant percentage of the investment portfolio, accounting for approximately 88% of the investments at September 30, 2011.
    •  Annualized yield on the investment portfolio was 4.11% for the first nine months of 2011 compared with 4.32% for full-year 2010.
    •  Available-for-sale fixed maturity securities totaled approximately $564.3 million, or 71.2% of total investments.  These securities are carried at market value with the fair value change reported as a component of Other Comprehensive Income.  Increases in unrealized gains in the total available-for-sale portfolio were $15.7 million and $28.0 million in the three and nine months ended September 30, 2011, compared to unrealized gains of $11.4 million and $21.9 million for the same periods in 2010.

Investment income – Net investment income was down for the nine months as annualized yield on the portfolio declined to 4.11% from 4.66% a year ago due to lower prevailing interest rates.  Investment income increased in the third quarter due to the growth in the portfolio assets reflecting new money from premiums invested.  Yield rates by quarter appear to be leveling off primarily because of a shrinking differential between the rates on called securities and the rates available on new securities.

  • Realized investment gains and losses – Realized investment gains and losses in the portfolio during the first nine months of 2011 resulted from issuer calls.  Net realized gains in 2010 totaled $0.6 million on the sale of available-for-sale securities of lower-rated issuers that had been part of an acquired portfolio.  The Company recorded no other-than-temporary impairment charges in 2011 or 2010.

Investor Conference Call

Citizens will host a conference call to discuss operating results on Friday, November 4, 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 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 the Citizens, Inc. 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  ordinary life, U.S. Dollar-denominated, cash-value-oriented insurance policies, ordinary life and annuity insurance product sales in the U.S. and the acquisition of other U.S.-based life insurance companies.

For additional information regarding the quarter's results, our Quarterly Report on Form 10-Q for the nine months ended September 30, 2011 is available on our website at www.citizensinc.com.

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 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, 2010, 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 Operations

Three Months Ended September 30,

(In thousands, except share amounts)

(Unaudited)









2011


2010

Revenues:





Premiums:






Life insurance

$         38,639


36,433



Accident and health insurance

383


392



Property insurance

1,277


1,230


Net investment income

7,693


7,272


Realized investment gains (losses), net

35


(103)


Decrease in fair value of warrants

239


128


Other income

282


103

Total revenues

48,548


45,455

Benefits and expenses:





Insurance benefits paid or provided:






Claims and surrenders

14,803


15,739



Increase in future policy benefit reserves

14,365


11,398



Policyholders' dividends

2,169


1,977


Total insurance benefits paid or provided

31,337


29,114









Commissions

9,224


9,229


Other general expenses

6,857


6,587


Capitalization of deferred policy acquisition costs

(7,121)


(6,973)


Amortization of deferred policy acquisition costs

4,500


3,800


Amortization of cost of customer relationships acquired

708


719

Total benefits and expenses

45,505


42,476








Income before federal income tax

3,043


2,979

Federal income tax expense

820


1,313


Net income

$           2,223


1,666






Per Share Amounts:





Basic and diluted earnings per share of Class A common stock

$            0.05


0.03


Basic and diluted earnings per share of Class B common stock

0.02


0.02



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES


Consolidated Statements of Operations

Nine Months Ended September 30,

(In thousands, except per share amounts)

(Unaudited)









2011


2010

Revenues:





Premiums:






Life insurance

$       112,481


105,114



Accident and health insurance

1,151


1,215



Property insurance

3,781


3,592


Net investment income

22,924


23,896


Realized investment gains (losses), net

41


648


Decrease in fair value of warrants

1,454


380


Other income

509


602

Total revenues

142,341


135,447

Benefits and expenses:





Insurance benefits paid or provided:






Claims and surrenders

44,587


46,410



Increase in future policy benefit reserves

39,683


30,726



Policyholders' dividends

5,751


5,324


Total insurance benefits paid or provided

90,021


82,460









Commissions

28,226


26,385


Other general expenses

20,386


20,562


Capitalization of deferred policy acquisition costs

(22,170)


(19,946)


Amortization of deferred policy acquisition costs

13,249


13,962


Amortization of cost of customer relationships acquired

2,113


2,311

Total benefits and expenses

131,825


125,734








Income before federal income tax

10,516


9,713

Federal income tax expense

3,270


3,257


Net income

$           7,246


6,456






Per Share Amounts:





Basic and diluted earnings per share of Class A common stock

$            0.15


0.13


Basic and diluted earnings per share of Class B common stock

0.07


0.07




CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES








Consolidated Statements of Financial Position

(In thousands)












September 30,


December 31,

Assets

2011


2010





(Unaudited)



Investments:





Fixed maturities available-for-sale, at fair value

$       564,269


575,737


Fixed maturities held-to-maturity, at amortized cost

131,820


80,232


Equity securities available-for-sale, at fair value

45,366


23,304


Mortgage loans on real estate

1,453


1,489


Policy loans

38,075


35,585


Real estate held for investment

9,126


9,200


Other long-term investments

141


148


Short-term investments

2,066


-

Total investments

792,316


725,695








Cash and cash equivalents

64,425


49,723

Accrued investment income

8,465


7,433

Reinsurance recoverable

9,890


9,729

Deferred policy acquisition costs

134,587


125,684

Cost of customer relationships acquired

29,108


31,631

Goodwill

17,160


17,160

Other intangible assets

913


1,019

Federal income tax receivable

344


1,914

Property and equipment, net

7,992


7,101

Due premiums, net

7,807


8,537

Prepaid expenses

1,027


474

Other assets

727


406

Total assets

$     1,074,761


986,506












(Continued)



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES


Consolidated Statements of Financial Position

(In thousands, except share amounts)












September 30,


December 31,

Liabilities and Stockholders' Equity

2011


2010





(Unaudited)



Liabilities:





Policy liabilities:






Future policy benefits reserves:







Life insurance

$       679,257


637,140




Annuities

45,891


42,096




Accident and health

5,553


5,910



Dividend accumulations

10,291


9,498



Premiums paid in advance

25,360


23,675



Policy claims payable

9,517


10,540



Other policyholders' funds

8,489


8,191


Total policy liabilities

784,358


737,050









Commissions payable

2,368


2,538


Deferred federal income tax

18,543


9,410


Payable for securities in process of settlement

6,654


-


Warrants outstanding

133


1,587


Other liabilities

8,188


8,287

Total liabilities

820,244


758,872








Commitments and contingencies




Stockholders' equity:





Common stock:






Class A

258,496


256,703



Class B

3,184


3,184


Accumulated deficit

(15,337)


(22,581)


Accumulated other comprehensive income:






Unrealized gains on securities, net of tax

19,185


1,339





265,528


238,645

Treasury stock, at cost

(11,011)


(11,011)

Total stockholders' equity

254,517


227,634

Total liabilities and stockholders' equity

$     1,074,761


986,506



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

SOURCE Citizens, Inc.

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