Citizens, Inc. Reports Fourth Quarter and Full Year 2011 Results
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
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)
Net investment income
Net realized investment gains
Change in fair value of warrants
Net income applicable to common stock
Net income per diluted share of Class A common stock
Diluted weighted average shares of Class A
"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)
Items excluded in the calculation of operating income:
Net realized investment (gains) and losses
Changes in the fair value of warrants
Pre tax effect of exclusions
Tax effect at 35%
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."
- 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.
- 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.
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:
Chief Financial Officer
Consolidated Statements of Operations
(In thousands, except per share amounts)
Three Months Ended
Twelve Months Ended
Accident and health insurance
Net investment income
Realized investment gains, net
Decrease (increase) in fair value of warrants
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders
Increase in future policy benefit reserves
Total insurance benefits paid or provided
Other general expenses
Capitalization of deferred policy acquisition costs
Amortization of deferred policy acquisition costs
Amortization of cost of customer relationships
Total benefits and expenses
Income before income tax expense
Income tax expense (benefit)
Per Share Amounts:
Basic earnings per share of Class A common stock
Basic earnings per share of Class B common stock
Diluted earnings per share of Class A common stock
Diluted earnings per share of Class B common stock
Consolidated Statements of Financial Position
Fixed maturities available-for-sale, at fair value
(cost: $484,809 and $578,412 in 2011 and 2010, respectively)
Fixed maturities held-to-maturity, at amortized cost
(fair value: $230,093 and $79,103 in 2011 and 2010, respectively)
Equity securities available-for-sale, at fair value
(cost: $45,599 and $19,844 in 2011 and 2010, respectively)
Mortgage loans on real estate
Real estate held for investment (less $1,149 and $1,017 accumulated
depreciation in 2011 and 2010, respectively)
Other long-term investments
Cash and cash equivalents
Accrued investment income
Deferred policy acquisition costs
Cost of customer relationships acquired
Other intangible assets
Federal income tax receivable
Property and equipment, net
Due premiums, net (less $1,698 and $1,568 allowance for doubtful
accounts in 2011 and 2010, respectively)
Consolidated Statements of Financial Position, Continued
Liabilities and Stockholders’ Equity
Future policy benefit reserves:
Accident and health
Premiums paid in advance
Policy claims payable
Other policyholders’ funds
Total policy liabilities
Deferred federal income taxes
Commitments and contingencies
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
Class B, no par value, 2,000,000 shares authorized,
1,001,714 shares issued and outstanding in 2011 and 2010
Accumulated other comprehensive income:
Unrealized gains on securities, net of tax
Treasury stock, at cost
Total stockholders’ equity
Total liabilities and stockholders’ equity
SOURCE Citizens, Inc.
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