UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

COMMISSION FILE NUMBER:  000-16509

CITIZENS, INC.

(Exact name of registrant as specified in its charter)

Colorado	84-0755371
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
2900 Esperanza Crossing, 2nd Floor
Austin, Texas	78758
(Address of principal executive offices)	(Zip Code)
(512) 837-7100	N/A
(Registrant's telephone number, including area code:)	(Former name, former address and former fiscal year, if changed since last report:)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
	Large accelerated filer ¨	Accelerated filer x	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period forcomplying with anyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Securities registered pursuant to Section 12(b) of the Act
Class A Common Stock	CIA	New York Stock Exchange
(Title of Each Class)	(Trading Symbol(s))	(Name of Each Exchange on Which Registered)

As of April 29, 2019, the Registrant had 52,364,993 shares of Class A common stock, no par value, outstanding and 1,001,714 shares of Class B common stock, no par value, outstanding.

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TABLE OF CONTENTS

			Page Number
Part I.	Financial Information
	Item 1.	Financial Statements
		Consolidated Statements of Financial Position, March 31, 2019 (Unaudited) and December 31, 2018	2
		Consolidated Statements of Comprehensive Income, Three Months Ended March 31, 2019 and 2018 (Unaudited)	4
		Consolidated Statements of Stockholders' Equity, Three Months Ended March 31, 2019 and 2018 (Unaudited)	5
		Consolidated Statements of Cash Flows, Three Months Ended March 31, 2019 and 2018 (Unaudited)	6
		Notes to Consolidated Financial Statements (Unaudited)	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50
	Item 4.	Controls and Procedures	51
Part II.	Other Information
	Item 1.	Legal Proceedings	52
	Item 1A.	Risk Factors	52
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
	Item 3.	Defaults Upon Senior Securities	67
	Item 4.	Mine Safety Disclosures	67
	Item 5.	Other Information	67
	Item 6.	Exhibits	68

1

PART I.  FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Financial Position (In thousands)
	March 31, 2019		December 31, 2018
Assets	(Unaudited)
Investments:
Fixed maturities available-for-sale, at fair value (cost: $1,259,353 and $1,223,747 in 2019 and 2018, respectively)	$	1,295,514	1,231,039
Equity securities, at fair value	15,672		15,068
Mortgage loans on real estate	185		186
Policy loans	81,474		80,825
Real estate held for investment (less $1,309 and $1,284 accumulated depreciation in 2019 and 2018, respectively)	5,693		5,718
Real estate held for sale (less $4,411 accumulated depreciation in 2018)	—		1,483
Other long-term investments	22		22
Short-term investments	7,914		7,865
Total investments	1,406,474		1,342,206
Cash and cash equivalents	34,093		45,492
Accrued investment income	18,155		18,467
Reinsurance recoverable	3,587		3,664
Deferred policy acquisition costs	154,076		155,747
Cost of customer relationships acquired	14,697		15,225
Goodwill	12,624		12,624
Other intangible assets	955		956
Property and equipment, net	7,046		5,943
Due premiums, net (less $1,663 and $1,990 allowance for doubtful accounts in 2019 and 2018, respectively)	11,083		13,325
Prepaid expenses	823		284
Other assets	1,943		1,628
Total assets	$	1,665,556	1,615,561

(Continued)

See accompanying notes to consolidated financial statements.

2

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Financial Position (In thousands, except share amounts)
	March 31, 2019			December 31, 2018
Liabilities and Stockholders' Equity	(Unaudited)
Liabilities:
Policy liabilities:
Future policy benefit reserves:
Life insurance	$	1,191,545		1,179,946
Annuities	76,500			76,377
Accident and health	938			944
Dividend accumulations	26,984			26,250
Premiums paid in advance	43,448			48,553
Policy claims payable	8,174			7,614
Other policyholders' funds	15,767			10,760
Total policy liabilities	1,363,356			1,350,444
Commissions payable	1,922			1,901
Current federal income tax payable	46,952			41,281
Deferred federal income tax liability	7,873			5,709
Payable for securities in process of settlement	4,884			—
Other liabilities	28,675			28,493
Total liabilities	1,453,662			1,427,828
Commitments and contingencies (Note 7)
Stockholders' equity:
Class A, no par value, 100,000,000 shares authorized, 52,364,993 and 52,215,852 shares issued and outstanding in 2019 and 2018, respectively, including shares in treasury of 3,135,738 in 2019 and 2018	260,876			259,793
Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2019 and 2018	3,184			3,184
Accumulated deficit	(73,401		)	(69,599	)
Accumulated other comprehensive income:
Unrealized gains on securities, net of tax	32,246			5,366
Treasury stock, at cost	(11,011		)	(11,011	)
Total stockholders' equity	211,894			187,733
Total liabilities and stockholders' equity	$	1,665,556		1,615,561

See accompanying notes to consolidated financial statements.

3

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Comprehensive Income Three Months Ended March 31, (In thousands, except per share amounts) (Unaudited)
	2019						2018
Revenues:
Premiums:
Life insurance				$	40,980			42,529
Accident and health insurance				323				291
Property insurance				1,161				1,209
Net investment income				13,796				13,771
Realized investment gains (losses), net				5,961				(575	)
Other income				185				208
Total revenues				62,406				57,433
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders				23,033				21,151
Increase in future policy benefit reserves				12,299				14,608
Policyholders' dividends				1,182				1,307
Total insurance benefits paid or provided				36,514				37,066
Commissions				7,884				8,959
Other general expenses				14,132				6,507
Capitalization of deferred policy acquisition costs				(4,828		)		(5,963	)
Amortization of deferred policy acquisition costs				6,277				7,606
Amortization of cost of customer relationships acquired				419				679
Total benefits and expenses				60,398				54,854
Income before federal income tax				2,008				2,579
Federal income tax expense				5,810				2,542
Net income (loss)				(3,802		)		37
Per Share Amounts:
Basic and diluted earnings (losses) per share of Class A common stock	$	(0.08	)				—
Basic and diluted earnings (losses) per share of Class B common stock	(0.04		)				—
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale debt securities:
Unrealized holding gains (losses) arising during period				28,801				(18,098	)
Reclassification adjustment for losses included in net income				104				259
Unrealized gains (losses) on available-for-sale debt securities, net				28,905				(17,839	)
Income tax expense (benefit) on unrealized gains (losses) on available-for-sale debt securities				2,025				(3,735	)
Other comprehensive income (loss)				26,880				(14,104	)
Total comprehensive income (loss)				$	23,078			(14,067	)

See accompanying notes to consolidated financial statements.

4

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Three Months Ended March 31, 2019 and 2018
(In thousands)
(Unaudited)
	Common Stock			Accumulated deficit		Accumulated other comprehensive income (loss)		Treasury stock		Total Stockholders' equity
	Class A		Class B
Balance at December 31, 2017	$	259,383	3,184	(54,375	)	26,332		(11,011	)	223,513
Accounting standards adopted January 1, 2018	—		—	(4,162	)	4,162		—		—
Balance at January 1, 2018	259,383		3,184	(58,537	)	30,494		(11,011	)	223,513
Comprehensive loss:
Net income	—		—	37		—		—		37
Unrealized investment losses, net	—		—	—		(14,104	)	—		(14,104	)
Total comprehensive loss	—		—	37		(14,104	)	—		(14,067	)
Balance at March 31, 2018	$	259,383	3,184	(58,500	)	16,390		(11,011	)	209,446
Balance at December 31, 2018	$	259,793	3,184	(69,599	)	5,366		(11,011	)	187,733
Comprehensive income:
Net loss	—		—	(3,802	)	—		—		(3,802	)
Unrealized investment gains, net	—		—	—		26,880		—		26,880
Total comprehensive income	—		—	(3,802	)	26,880		—		23,078
Stock-based compensation	1,083		—	—		—		—		1,083
Balance at March 31, 2019	$	260,876	3,184	(73,401	)	32,246		(11,011	)	211,894

See accompanying notes to consolidated financial statements.

5

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Three Months Ended March 31, (In thousands) (Unaudited)
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(3,802	)	37
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized (gains) losses on sale of investments and other assets	(5,961		)	575
Net deferred policy acquisition costs	1,449			1,643
Amortization of cost of customer relationships acquired	419			679
Depreciation	396			437
Amortization of premiums and discounts on investments	4,043			4,155
Stock-based compensation	1,460			—
Deferred federal income tax benefit	140			(1,793	)
Change in:
Accrued investment income	312			310
Reinsurance recoverable	77			(65	)
Due premiums	2,242			1,870
Future policy benefit reserves	12,217			14,757
Other policyholders' liabilities	1,195			2,352
Federal income tax payable	5,671			4,335
Commissions payable and other liabilities	204			(6,872	)
Other, net	(2,139		)	(429	)
Net cash provided by operating activities	17,923			21,991
Cash flows from investing activities:
Purchase of fixed maturities, available-for-sale	(74,209		)	(43,914	)
Sale of fixed maturities, available-for-sale	7,659			—
Maturities and calls of fixed maturities, available-for-sale	31,631			16,501
Maturities and calls of fixed maturities, held-to-maturity	—			2,295
Principal payments on mortgage loans	2			2
Increase in policy loans, net	(650		)	(1,901	)
Sale of other long-term investments and real estate	6,996			1
Sale of property and equipment	18			—
Purchase of property and equipment	(257		)	(61	)
Net cash used in investing activities	(28,810		)	(27,077	)
See accompanying notes to consolidated financial statements.

6

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows, Continued Three Months Ended March 31, (In thousands) (Unaudited)
	2019			2018
Cash flows from financing activities:
Annuity deposits	$	1,541		1,775
Annuity withdrawals	(1,676		)	(1,506	)
Other	(377		)	—
Net cash provided by (used in) financing activities	(512		)	269
Net decrease in cash and cash equivalents	(11,399		)	(4,817	)
Cash and cash equivalents at beginning of year	45,492			46,064
Cash and cash equivalents at end of period	$	34,093		41,247

Supplemental Disclosures of Noncash Investing and Financing Activities:

During the three months ended March 31, 2019, various fixed maturity issuers exchanged securities with book values of $8.8 million for securities of equal value. There were none during the three months ended March 31, 2018.

The Company had net unsettled security trades of $4.9 million at March 31, 2019 and none at March 31, 2018.

See accompanying notes to consolidated financial statements.

7

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2019

(Unaudited)

(1) Financial Statements

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts and operations of Citizens, Inc. ("Citizens"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA"), CICA Life Ltd. ("CICA Ltd."), Citizens National Life Insurance Company ("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC") and Computing Technology, Inc. ("CTI").  All significant inter-company accounts and interactions have been eliminated. Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company," "we," "us" or "our."

The consolidated statements of financial position as of March 31, 2019, the consolidated statements of comprehensive income for the three months ended March 31, 2019 and March 31, 2018 and the consolidated statements of stockholders' equity and cash flows for the three months ended March 31, 2019 and March 31, 2018 have been prepared by the Company without audit.  In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at March 31, 2019 and for comparative periods have been made.  The consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission ("SEC").  Accordingly, the consolidated financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.  Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

We provide primarily life insurance and a small amount of health insurance policies through our insurance subsidiaries - CICA, CICA Ltd., SPLIC, MGLIC and CNLIC.  CICA Ltd. primarily issues endowment and ordinary whole-life policies to non-U.S. residents. SPLIC offers final expense and home service life insurance in Louisiana, Arkansas and Mississippi, and SPFIC, a wholly-owned subsidiary of SPLIC, writes a limited amount of property insurance in Louisiana. MGLIC provides industrial life policies through independent funeral homes in Mississippi.

CTI provides data processing systems and services to the Company.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Significant estimates include those used in the evaluation of other-than-temporary impairments on debt and equity securities, actuarially determined assets and liabilities and assumptions, tests of goodwill impairment, valuation allowance on deferred tax assets, valuation of uncertain tax positions and contingencies relating to litigation and regulatory matters.  Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the consolidated financial statements.

8

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

Significant Accounting Policies

For a description of significant accounting policies, see Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, which should be read in conjunction with these accompanying consolidated financial statements.

(2) Accounting Pronouncements

Accounting Standards Recently Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). The ASU requires organizations that lease assets, referred to as "lessees," to recognize on the consolidated statement of financial position the rights and obligations created by those leases. The ASU also requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the consolidated financial statements. The ASU on leases became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company has several lease agreements, such as district office locations related to our Home Service Insurance segment. The Company adopted this standard effective January 1, 2019 and recognizes these lease agreements on the consolidated statements of financial position as a right-of-use asset and a corresponding lease liability. See Note 9. Leases for further discussions.

In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The Company has a large portfolio of callable debt securities purchased at a premium. As such, the Company had already been amortizing the premium to the earliest call date (yield to worst). For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. We adopted the provisions of this ASU in the first quarter of 2019. This guidance did not have a material impact on our consolidated financial statements.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), with the main objective to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. Credit losses on available-for-sale debt securities should be measured in a manner similar to current U.S. GAAP; however, the credit losses are recorded through an allowance for credit losses rather than as a write-down. This approach is an improvement to current U.S. GAAP because an entity will be able to record reversals of credit losses (in situations in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement recognition of credit losses with the reporting period in which changes occur. Current U.S. GAAP prohibits reflecting

9

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

those improvements in current-period earnings. For public business entities, the amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact this guidance will have on our consolidated financial statements. This guidance could have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. This ASU amends four key areas of the accounting and impacts disclosures for long-duration insurance and investment contracts:

Requires updated assumptions for liability measurement. Assumptions used to measure the liability for traditional insurance contracts, which are typically determined at contract inception, will now be reviewed at least annually, and, if there is a change, updated, with the effect recorded in net income;

Standardizes the liability discount rate. The liability discount rate will be a market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income;

Provides greater consistency in measurement of market risk benefits. The two previous measurement models have been reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk;

Simplifies amortization of deferred acquisition costs. Previous earnings-based amortization methods have been replaced with a more level amortization basis; and

Requires enhanced disclosures. The new disclosures include rollforwards and information about significant assumptions and the effects of changes in those assumptions.

For calendar-year public companies, the changes will be effective on January 1, 2021. The Company is evaluating the impact this guidance will have on our consolidated financial statements. This new guidance is expected to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU will be effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As this ASU only revises disclosure requirements, it is not expected to have a material impact on the Company’s consolidated financial statements.

In September 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an "other asset"). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. This ASU will be effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. We are evaluating the impact of this guidance on our limited cloud computing arrangements and our consolidated financial statements.

No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a material impact on our consolidated financial statements.

10

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

(3) Segment Information

The Company has two reportable segments:  Life Insurance and Home Service Insurance.  The Life Insurance and Home Service Insurance portions of the Company constitute separate businesses. CICA, CICA Ltd. and CNLIC constitute the Life Insurance segment, and SPLIC, SPFIC and MGLIC constitute the Home Service Insurance segment. In addition to the Life Insurance and Home Service Insurance business, the Company also operates other non-insurance ("Other Non-Insurance Enterprises") portions of the Company, which primarily include the Company's IT and Corporate-support functions, and are included in the tables presented below to properly reconcile the segment information with the consolidated financial statements of the Company.

The accounting policies of the segments and Other Non-Insurance Enterprises are presented in accordance with U.S. GAAP and are the same as those used in the preparation of the consolidated financial statements.  The Company evaluates profit and loss performance based on U.S. GAAP income before federal income taxes for its two reportable segments.

The Company's Other Non-Insurance Enterprises are the only reportable difference between segments and consolidated operations.

	Three Months Ended
	March 31, 2019
	Life Insurance			Home Service Insurance		Other Non-Insurance Enterprises		Consolidated
	(In thousands)
Revenues:
Premiums	$	30,914		11,550		—		42,464
Net investment income	10,169			3,086		541		13,796
Realized investment gains, net	5,457			484		20		5,961
Other income	183			1		1		185
Total revenue	46,723			15,121		562		62,406
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	17,162			5,871		—		23,033
Increase in future policy benefit reserves	11,313			986		—		12,299
Policyholders' dividends	1,172			10		—		1,182
Total insurance benefits paid or provided	29,647			6,867		—		36,514
Commissions	4,373			3,511		—		7,884
Other general expenses	6,205			5,070		2,857		14,132
Capitalization of deferred policy acquisition costs	(3,702		)	(1,126	)	—		(4,828	)
Amortization of deferred policy acquisition costs	5,441			836		—		6,277
Amortization of cost of customer relationships acquired	122			297		—		419
Total benefits and expenses	42,086			15,455		2,857		60,398
Income (loss) before federal income tax expense	$	4,637		(334	)	(2,295	)	2,008

11

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

	Three Months Ended
	March 31, 2018
	Life Insurance			Home Service Insurance		Other Non-Insurance Enterprises		Consolidated
	(In thousands)
Revenues:
Premiums	$	32,360		11,669		—		44,029
Net investment income	10,130			3,302		339		13,771
Realized investment losses, net	(185		)	(352	)	(38	)	(575	)
Other income (loss)	209			(1	)	—		208
Total revenue	42,514			14,618		301		57,433
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	15,291			5,860		—		21,151
Increase in future policy benefit reserves	13,582			1,026		—		14,608
Policyholders' dividends	1,297			10		—		1,307
Total insurance benefits paid or provided	30,170			6,896		—		37,066
Commissions	5,228			3,731		—		8,959
Other general expenses(1)	(884		)	5,544		1,847		6,507
Capitalization of deferred policy acquisition costs	(4,640		)	(1,323	)	—		(5,963	)
Amortization of deferred policy acquisition costs	6,540			1,066		—		7,606
Amortization of cost of customer relationships acquired	152			527		—		679
Total benefits and expenses	36,566			16,441		1,847		54,854
Income (loss) before federal income tax expense	$	5,948		(1,823	)	(1,546	)	2,579

⁽¹⁾During the three months ended March 31, 2018, the Company reduced its estimate of the liability accrued for policies that are not in compliance with Section 7702 of the Internal Revenue Code from $12.3 million to $5.1 million, as we continue to refine our estimates. The decrease is primarily related to the Life Insurance segment, which when offset by the impact of increased compliance costs, resulted in a negative amount reported for other general expenses for the Life Insurance segment for the three months ended March 31, 2018. For further information, refer to disclosures under the "Qualification of Life Products" heading within Note 7 in the Company's notes to consolidated financial statements.

12

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

(4) Earnings Per Share

The following tables set forth the computation of basic and diluted earnings per share.

	Three Months Ended
	March 31, 2019			March 31, 2018
	(In thousands, except per share amounts)
Basic and diluted earnings per share:
Numerator:
Net income (loss)	$	(3,802	)	37
Net income (loss) allocated to Class A common stock	$	(3,764	)	37
Net income (loss) allocated to Class B common stock	(38		)	—
Net income (loss)	$	(3,802	)	37
Denominator:
Weighted average shares of Class A outstanding - basic	49,229			49,080
Weighted average shares of Class A outstanding - diluted	49,267			49,080
Weighted average shares of Class B outstanding - basic and diluted	1,002			1,002
Basic and diluted earnings (loss) per share of Class A common stock	$	(0.08	)	—
Basic and diluted earnings (loss) per share of Class B common stock	(0.04		)	—

(5) Investments

The Company invests primarily in fixed maturity securities, which totaled 90.0% of total cash, cash equivalents and investments at March 31, 2019. The Company's cash, cash equivalents and investments are listed below.

	March 31, 2019			December 31, 2018
	Carrying Value		% of Total Carrying Value	Carrying Value		% of Total Carrying Value
	(In thousands)			(In thousands)
Fixed maturity securities	$	1,295,514	90.0	$	1,231,039	88.7
Equity securities	15,672		1.1	15,068		1.1
Mortgage loans	185		—	186		—
Policy loans	81,474		5.7	80,825		5.8
Real estate and other long-term investments	5,715		0.4	7,223		0.5
Short-term investments	7,914		0.4	7,865		0.6
Cash and cash equivalents	34,093		2.4	45,492		3.3
Total cash, cash equivalents and investments	$	1,440,567	100.0	$	1,387,698	100.0

13

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

The following tables represent the cost or amortized cost, gross unrealized gains and losses and fair value for fixed maturities as of the periods indicated.

	March 31, 2019
	Cost or Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
	(In thousands)
Fixed maturities:
Available-for-sale:
U.S. Treasury securities	$	9,841	1,492	—	11,333
U.S. Government-sponsored enterprises	3,534		846	—	4,380
States and political subdivisions	686,141		12,434	460	698,115
Corporate	438,608		18,344	2,518	454,434
Commercial mortgage-backed	887		—	—	887
Residential mortgage-backed	115,463		6,021	3	121,481
Asset-backed	4,763		3	1	4,765
Foreign governments	116		3	—	119
Total fixed maturities	$	1,259,353	39,143	2,982	1,295,514

	December 31, 2018
	Cost or Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
	(In thousands)
Fixed maturities:
Available-for-sale securities:
U.S. Treasury securities	$	9,864	1,410	—	11,274
U.S. Government-sponsored enterprises	3,540		740	—	4,280
States and political subdivisions	713,991		7,614	1,490	720,115
Corporate	384,817		6,725	9,746	381,796
Commercial mortgage-backed	39,694		386	66	40,014
Residential mortgage-backed	66,960		1,726	2	68,684
Asset-backed	4,764		1	8	4,757
Foreign governments	117		2	—	119
Total fixed maturities	$	1,223,747	18,604	11,312	1,231,039

14

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

Most of the Company's equity securities are diversified stock and bond mutual funds.

	March 31, 2019		December 31, 2018
	Fair Value		Fair Value
	(In thousands)
Equity securities:
Stock mutual funds	$	3,091	2,906
Bond mutual funds	12,143		11,774
Common stock	133		94
Non-redeemable preferred stock	305		294
Total equity securities	$	15,672	15,068

Valuation of Investments in Fixed Maturity and Equity Securities

Available-for-sale securities are reported in the consolidated financial statements at fair value. Equity securities are measured at fair value with the change in fair value recorded through net income. The Company recognized net realized gains of $602,000 and net realized losses of $302,000 on equity securities held for the three months ended March 31, 2019 and 2018, respectively.

The Company monitors all debt securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews.  The assessment of whether other-than-temporary impairments ("OTTI") have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value.  The Company determines OTTI by reviewing relevant evidence related to the specific security issuer as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

When an OTTI has occurred, the amount of the OTTI recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis.  If the Company intends to sell the security or it is more likely that the Company will be required to sell the security before recovery of its amortized cost basis, the OTTI is recognized in earnings equal to the entire difference between the investment's amortized cost and its fair value at the balance sheet date.  If the Company does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security before recovery of its amortized cost basis, the OTTI is separated into the following: (a) the amount representing the credit loss; and (b) the amount related to all other factors.  The amount of the total OTTI related to the credit loss is recognized in earnings.  The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes.  The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.  The new amortized cost basis is not adjusted for subsequent recoveries in fair value.

The Company evaluates whether a credit impairment exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; (d) the length of time to which the fair value has been less than the amortized cost of the security; and (e) the payment structure of the security.  The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process.  Quantitative review includes information received from third party sources such as financial statements, pricing and rating changes, liquidity and other statistical information.  Qualitative factors include judgments related to business strategies, economic impacts on the issuer and overall judgment related to estimates and industry factors.  The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates.  These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of

15

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

expected recoveries, which may include estimating the underlying collateral value.  In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer.

No bond impairments were recognized for the three months ended March 31, 2019.  OTTI of $225,000 was recognized on one bond issuer for the three months ended March 31, 2018.

The following tables present the fair values and gross unrealized losses of fixed maturity securities that have remained in a continuous unrealized loss position for the periods indicated.

	March 31, 2019
	Less than 12 months				Greater than 12 months			Total
	Fair Value		Unrealized Losses	# of Securities	Fair Value	Unrealized Losses	# of Securities	Fair Value	Unrealized Losses	# of Securities
	(In thousands, except for # of securities)
Fixed maturities:
Available-for-sale securities:
States and political subdivisions	$	67,893	75	60	51,053	385	70	118,946	460	130
Corporate	53,090		1,747	42	19,818	771	24	72,908	2,518	66
Residential mortgage-backed	—		—	—	96	3	5	96	3	5
Asset-backed	2,001		1	2	—	—	—	2,001	1	2
Total available-for-sale securities	$	122,984	1,823	104	70,967	1,159	99	193,951	2,982	203

	December 31, 2018
	Less than 12 months				Greater than 12 months			Total
	Fair Value		Unrealized Losses	# of Securities	Fair Value	Unrealized Losses	# of Securities	Fair Value	Unrealized Losses	# of Securities
	(In thousands, except for # of securities)
Fixed maturities:
Available-for-sale securities:
States and political subdivisions	$	227,132	883	233	33,891	607	46	261,023	1,490	279
Corporate	230,030		8,770	191	9,936	976	8	239,966	9,746	199
Commercial mortgage-backed	14,992		66	11	—	—	—	14,992	66	11
Residential mortgage-backed	18		—	3	98	2	4	116	2	7
Asset-backed	3,747		8	4	—	—	—	3,747	8	4
Total fixed maturities	$	475,919	9,727	442	43,925	1,585	58	519,844	11,312	500

We have reviewed these securities in an unrealized loss position for the periods ended March 31, 2019 and December 31, 2018 and determined that no OTTI exists that have not been recognized based on our evaluation of the credit worthiness of the issuers and the fact that we do not intend to sell the investments nor is it likely that we will be required to sell the securities before recovery of their amortized cost bases which may be maturity.  We continue to monitor all securities on an on-going basis and future information may become available which could result in other-than-temporary impairments being recorded.

The amortized cost and fair value of fixed maturity securities at March 31, 2019 by contractual maturity are shown in the table below.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations

16

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

with or without call or prepayment penalties. Securities not due at a single maturity date have been reflected based upon final stated maturity.

	March 31, 2019
	Amortized Cost		Fair Value
	(In thousands)
Fixed maturity securities:
Due in one year or less	$	79,036	79,178
Due after one year through five years	131,849		134,746
Due after five years through ten years	215,686		222,226
Due after ten years	832,782		859,364
Total fixed maturity securities	$	1,259,353	1,295,514

The Company uses the specific identification method of the individual security to determine the cost basis used in the calculation of realized gains and losses related to security sales.  

	Fixed Maturities, Available-for-Sale			Equity Securities
	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2019		2018	2019	2018
	(In thousands)
Proceeds	$	7,659	—	—	—
Gross realized gains	$	2	—	—	—
Gross realized losses	$	183	—	—	—

There were sales of ten available-for-sale fixed maturity securities for the three months ended March 31, 2019. No available-for-sale fixed maturity securities were sold during the three months ended March 31, 2018. No equity securities were sold during the three months ended March 31, 2019 and 2018.

(6) Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  We hold available-for-sale fixed maturity securities, which are carried at fair value. We also report our equity securities at fair value with changes in fair value reported through the consolidated statements of comprehensive income.

17

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

Fair value measurements are generally based upon observable and unobservable inputs.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information.  We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:

• Level 1 - Quoted prices for identical instruments in active markets.

• Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or whose significant value drivers are observable.

• Level 3 - Instruments whose significant value drivers are unobservable.

Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments.

Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes.  These models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments.  All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace.  Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, municipal securities and certain mortgage and asset-backed securities.

Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information.  There were no securities in this category at March 31, 2019.

18

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

The following tables set forth our assets that are measured at fair value on a recurring basis as of the dates indicated.

	March 31, 2019
Financial Assets	Level 1		Level 2	Level 3	Total Fair Value
	(In thousands)
Fixed maturities available-for-sale
U.S. Treasury and U.S. Government-sponsored enterprises	$	11,333	4,380	—	15,713
States and political subdivisions	—		698,115	—	698,115
Corporate	50		454,384	—	454,434
Commercial mortgage-backed	—		887	—	887
Residential mortgage-backed	—		121,481	—	121,481
Asset-backed	—		4,765	—	4,765
Foreign governments	—		119	—	119
Total fixed maturities available-for-sale	11,383		1,284,131	—	1,295,514
Equity securities
Stock mutual funds	3,091		—	—	3,091
Bond mutual funds	12,143		—	—	12,143
Common stock	133		—	—	133
Non-redeemable preferred stock	305		—	—	305
Total equity securities	15,672		—	—	15,672
Total financial assets	$	27,055	1,284,131	—	1,311,186

19

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

	December 31, 2018
Financial Assets	Level 1		Level 2	Level 3	Total Fair Value
	(In thousands)
Fixed maturities available-for-sale
U.S. Treasury and U.S. Government-sponsored enterprises	$	11,274	4,280	—	15,554
States and political subdivisions	—		720,115	—	720,115
Corporate	47		381,749	—	381,796
Commercial mortgage-backed	—		40,014	—	40,014
Residential mortgage-backed	—		68,684	—	68,684
Asset-backed	—		4,757	—	4,757
Foreign governments	—		119	—	119
Total fixed maturities available-for-sale	11,321		1,219,718	—	1,231,039
Equity securities
Stock mutual funds	2,906		—	—	2,906
Bond mutual funds	11,774		—	—	11,774
Common stock	94		—	—	94
Non-redeemable preferred stock	294		—	—	294
Total equity securities	15,068		—	—	15,068
Total financial assets	$	26,389	1,219,718	—	1,246,107

Financial Instruments Valuation

Fixed maturity securities, available-for-sale.  At March 31, 2019, our fixed maturity securities, valued using a third-party pricing source, totaled $1.3 billion for Level 2 assets and comprised 97.9% of total reported fair value of our financial assets.  The Level 1 and Level 2 valuations are reviewed and updated quarterly through random testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades.  In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness.  There were no Level 3 assets at March 31, 2019. For the three months ended March 31, 2019, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received. There were no transfers between Levels 1 and 2 securities during the three months ended March 31, 2019.

Equity securities.  Our equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices.

We review the fair value hierarchy classifications each reporting period.  Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets.  Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. There were no transfers in or out of Level 3 during the three months ended March 31, 2019.

Financial Instruments not Carried at Fair Value

Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments.  The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions.

20

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

The carrying amount and fair value for the financial assets and liabilities on the consolidated balance sheets not otherwise disclosed for the periods indicated are as follows:

	March 31, 2019			December 31, 2018
	Carrying Value		Fair Value	Carrying Value	Fair Value
	(In thousands)
Financial assets:
Mortgage loans	$	185	221	186	222
Policy loans	81,474		81,474	80,825	80,825
Short-term investments	7,914		7,914	7,865	7,865
Cash and cash equivalents	34,093		34,093	45,492	45,492
Financial liabilities:
Annuity - investment contracts	55,821		55,109	56,658	55,977

Mortgage loans are secured principally by residential properties.  Weighted average interest rates for these loans were approximately 6.6% at March 31, 2019 and December 31, 2018. At March 31, 2019, maturities ranged from 19 to 23 years.  Management estimated the fair value using an annual interest rate of 6.25% at March 31, 2019.  Our mortgage loans are considered Level 3 assets in the fair value hierarchy.

Policy loans had a weighted average annual interest rate of 7.7% as of March 31, 2019 and December 31, 2018, and no specified maturity dates.  The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets.  These loans typically carry an interest rate that corresponds to the crediting rate applied to the related policy and contract reserves.  Policy loans are an integral part of the life insurance policies we have inforce, cannot be valued separately and are not marketable.  Therefore, the fair value of policy loans approximates the carrying value and policy loans are considered Level 3 assets in the fair value hierarchy.

The fair value of cash and cash equivalents approximate carrying value and are characterized as Level 1 assets in the fair value hierarchy.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 assets, was estimated at March 31, 2019 using discounted cash flows based upon spot rates ranging from 2.38% to 3.56% based upon swap rates adjusted for various risk adjustments. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

(7) Commitments and Contingencies

Qualification of Life Products

We have previously reported that a portion of the life insurance policies issued by our subsidiary insurance companies failed to qualify for the favorable U.S. federal income tax treatment afforded by Section 7702 of the Internal Revenue Code ("IRC") of 1986. Further, we have determined that the structure of our policies sold to non-U.S. citizens, which were novated to CICA Ltd. effective July 1, 2018, may have inadvertently generated U.S. source income over time. Based upon a review of the options available to address these issues, we intend to remediate domestic life and annuity policies to U.S. citizens to comply with the IRC. For the novated policies sold to non-U.S. citizens, we expect to settle any past liabilities with the Internal Revenue Service ("IRS"). The Company has continued to refine its estimate of the exposure and expenses related to these tax issues, as described below for the current reporting period. The products have been and continue to be appropriately reported as life insurance under U.S. GAAP for financial reporting.

21

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

These tax issues result in an estimated liability as of March 31, 2019 and December 31, 2018 of $10.0 million, after tax, related to projected IRS settlement amounts of $9.1 million and reserve increases totaling $0.9 million to bring policies into compliance. The probability weighted range of financial estimates relative to this issue is $6.0 million to $52.5 million, after tax. This estimated range includes projected taxes and interest and penalties payable to the IRS, as well as estimated increased payout obligations to current holders of non-compliant domestic life insurance policies expected to result from remediation of those policies. The estimated liability and the estimated range will be updated as we continue to refine our estimates.

The amount of our liabilities and expenses depends on a number of uncertainties, including the number of prior tax years for which we may be liable to the IRS, the number of domestic life insurance policies we will be required to remediate, and the methodology applicable to the calculation of the tax liabilities for policies. Given the range of potential outcomes and the significant variables assumed in establishing our estimates, actual amounts incurred may exceed our reserve and could exceed the high end of our estimated range of liabilities and expenses. To the extent the amount reserved by the Company is insufficient to meet the actual amount of our liabilities and expenses, or if our estimates of those liabilities and expenses change in the future, our financial condition and results of operation may be materially adversely affected. Management believes that based upon current information we have recorded the best estimate liability to date.

Accruals for loss contingencies are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. The process of determining our best estimate and the estimated range was a complex undertaking including insight from external consultants and involved management’s judgment based upon a variety of factors known at the time. We expect to incur additional costs ranging from $0.6 million to $0.9 million related to performing this analysis, but due to the uncertainty of actions, we cannot reasonably estimate these costs with any reliability. Actual amounts incurred may exceed this estimate and will be recorded as they become probable and can be reasonably estimated.

On May 17, 2017, we submitted an offer to enter into Closing Agreements with the IRS covering the CICA and CNLIC domestic life insurance businesses. The toll charges calculated and enumerated in the Closing Agreements totaled $124,000 and $4,000 for the CICA and CNLIC domestic life insurance businesses, respectively. We have not yet received any correspondence from the IRS related to our submissions.

Litigation and Regulatory Actions

From time to time we are subject to legal and regulatory actions relating to our business. We may incur defense costs, including attorneys' fees, and other direct litigation costs associated with defending claims. If we suffer an adverse judgment as a result of litigation claims, it could have a material adverse effect on our business, results of operations and financial condition.

(8) Income Taxes

CICA Ltd., a wholly owned subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes. As a result, the insurance activity of CICA Ltd. is subject to Subpart F of the IRC and is included in Citizens’ taxable income. As of March 31, 2019, the Subpart F income inclusion generated $0.7 million of federal income tax expense.

22

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

Our provision for income taxes may not have the customary relationship of taxes to income. A reconciliation between the U.S. corporate income tax rate and the effective income tax rate is as follows:

	Three Months Ended March 31,
	2019				2018
	Amount		%		Amount			%
	(In thousands, except for %)
Expected tax expense (benefit)	$	422	21.0	%	$	542		21.0	%
Foreign income tax rate differential	85		4.2	%	—			—	%
Annualized effective tax rate adjustment	3,319		165.3	%	2,882			111.7	%
Effect of uncertain tax position	1,192		59.4	%	702			27.2	%
Nondeductible costs to remediate tax compliance issue	—		—	%	(1,543		)	(59.8	)%
CICA Ltd. Subpart F income	711		35.3	%	—			—	%
Other	81		4.1	%	(41		)	(1.6	)%
Total federal income tax expense	$	5,810	289.3	%	$	2,542		98.5	%

A reconciliation of federal income tax expense above is computed by applying the federal income tax rate of 21% in 2019 and 2018 to income before federal income tax expense.

Income tax expense consists of:

	Three Months Ended
	March 31,
	2019		2018
	(In thousands)
Current	$	5,671	4,335
Deferred	139		(1,793	)
Total federal income tax expense	$	5,810	2,542

23

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

The components of deferred federal income taxes are as follows:

	March 31, 2019			December 31, 2018
	(In thousands)
Deferred tax assets:
Future policy benefit reserves	$	2,835		2,795
Net operating and capital loss carryforwards	193			191
Accrued expenses	22			30
Investments	2,106			1,841
Deferred intercompany loss	4,999			5,190
Other	60			309
Total gross deferred tax assets	$	10,215		10,356
Deferred tax liabilities:
Deferred policy acquisition costs, cost of customer relationships acquired and intangible assets	$	(8,712	)	(8,745	)
Unrealized gains on investments available-for-sale	(4,113		)	(1,968	)
Tax reserves transition liability	(4,690		)	(4,864	)
Other	(573		)	(488	)
Total gross deferred tax liabilities	(18,088		)	(16,065	)
Net deferred tax liability	$	(7,873	)	(5,709	)

(9) Leases

Effective January 1, 2019, the Company adopted the new lease accounting guidance in Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASC No. 842"). We also elected the package of practical expedients, which among other things, does not require reassessment of lease classification. As a result of the adoption of the new lease accounting guidance, the Company recognized on January 1, 2019 a lease liability of $1.8 million discounted using an incremental borrowing rate of 4.76% and a right-of-use asset of $1.8 million. There was $1.3 million of undiscounted lease liability remaining as of March 31, 2019. The Company uses its estimated incremental borrowing rate, which is derived from information available at lease commencement date, in determining present value of lease payments.

The Company leases home office space in Austin, Texas for Citizens, Inc. and in Bermuda for CICA Ltd. as well as several district office locations related to our Home Service Insurance segment across Louisiana, Mississippi and Arkansas, which are classified as operating leases. Certain operating leases include renewal options that extend the lease term. The exercise of lease renewal options is at our sole discretion when it is reasonably certain that we will exercise such option. Leases with an initial term of 12 months or less are immaterial to the consolidated financial statements and are recognized as lease expense on a straight-line basis over the lease term and not recorded on the balance sheet.

The table below summarizes the number of weighted-average years remaining in our lease liabilities.

Lease Term	March 31, 2019
Weighted-average remaining lease term (years)
Operating leases	1.8

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

March 31, 2019

(Unaudited)

Maturities of our remaining lease liabilities as of March 31, 2019 are as follows.

Maturity of Lease Liabilities	Operating Lease Payments (a)
	(In thousands)
2019	$	734
2020	395
2021	187
2022	32
2023	—
After 2023	—
Total lease payments	1,348
Interest expense	(56		)
Present value of lease liabilities	$	1,292

^(a)Operating lease payments exclude $13.5 million of legally binding minimum lease payments for leases signed but not yet commenced.

We recorded the lease right-of-use asset in Other Assets and the lease liability in Other Liabilities. Cash payments related to lease liabilities were $0.5 million for the three months ended March 31, 2019 and were reported in operating cash flows.

In January 2019, the Company entered into a long-term lease agreement with an unrelated party for its new home office in Austin, Texas.  The building in which we have leased office space is under construction and is expected to be completed in 2020. The long-term lease will commence after construction of the building is complete and has a 121-month term, and therefore is not included in the tables above. Payments under the new long-term lease agreement will average approximately $112,340 per month. To bridge the gap between the expiration date of the current lease and the lease commencement date of the new long-term lease, the Company is in the process of locating a short-term lease for our principal executive office. 

The Company does not engage in lease agreements among related parties.

(10) Related Party Transactions

The Company has various routine related party transactions in conjunction with our holding company structure, such as a management service agreement related to costs incurred, a tax sharing agreement between entities, and inter-company dividends and capital contributions.  There were no other changes related to these relationships during the three months ended March 31, 2019.  See our Annual Report on Form 10-K for the year ended December 31, 2018 for a comprehensive discussion of related party transactions.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report are not statements of historical fact and constitute forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements specifically identified as forward-looking statements within this document.  Many of these statements contain risk factors as well.  In addition, certain statements in future filings by the Company with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of the Company, which are not statements of historical fact, constitute forward-looking statements. Examples of forward-looking statements include, but are not limited to:  (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure, and other financial items, (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services, (iii) statements of future economic performance and (iv) statements of assumptions underlying such statements.  Words such as "believes," "anticipates," "assumes," "estimates," "plans," "projects," "could," "expects," "intends," "targeted," "may," "will" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by the forward-looking statements.  Factors that could cause the Company's future results to differ materially from expected results include, but are not limited to:

• Changes in the application, interpretation or enforcement of foreign insurance laws that impact our business, which derives the substantial majority of its revenues from residents of foreign countries;

• Potential changes in amounts reserved for in connection with intended proposals for settlement with the IRS related to tax withholding and product compliance matters;

• The transition of our international business to a new Bermuda-based entity, the regulatory oversight of our international business by the Bermuda Monetary Authority and potential shifts in policyholder behavior arising from these changes;

• Changes in foreign and U.S. general economic, market, and political conditions, including the performance of financial markets and interest rates;

• Changes in consumer behavior or regulatory oversight, which may affect our ability to sell our products and retain business;

• The timely development of and acceptance of our new products and the perceived overall value of these products and services by existing and potential customers;

• Fluctuations in experience regarding current mortality, morbidity, persistency and interest rates relative to expected amounts used in pricing our products;

• The performance of our investment portfolio, which may be adversely affected by changes in interest rates, adverse developments and ratings of issuers whose debt securities we may hold, and other adverse macroeconomic events;

• Results of litigation we may be involved in;

• Changes in assumptions related to deferred acquisition costs and the value of any businesses we may acquire;

• Regulatory, accounting or tax changes that may affect the cost of, or the demand for, our products or services;

• Our concentration of business from persons residing in Latin America and the Pacific Rim;

• Changes in tax laws;

• Effects of acquisitions and restructuring, including possible difficulties in integrating and realizing the projected results of acquisitions;

• Changes in statutory or U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), policies or practices;

• Changes in leadership among our board and senior management team;

• Our success at managing risks involved in the foregoing; and

• The risk factors discussed in Part II. Other Information-1A. Risk Factors of this report.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.

The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov. We also make available, free of charge, through our Internet website (http://www.citizensinc.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 Reports filed by officers and directors, news releases, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission.  We are not including any of the information contained on our website as part of, or incorporating it by reference into, this report.

Overview

Citizens, Inc. ("Citizens" or the "Company") is an insurance holding company incorporated in Colorado serving the life insurance needs of individuals in the U.S. since 1969 and internationally since 1975. Through our insurance subsidiaries, we pursue a strategy of offering traditional insurance products in niche markets where we believe we can achieve competitive advantages.  As of March 31, 2019, we had approximately $1.7 billion of total assets and approximately $4.8 billion of insurance inforce.  Our core insurance operations include issuing and servicing:

• U.S. dollar-denominated ordinary whole life insurance and endowment policies predominantly to foreign residents, located principally in Latin America and the Pacific Rim through independent marketing consultants;

• ordinary whole life insurance policies to middle income households concentrated in the Midwest, Mountain West and southern United States ("U.S.") through independent marketing consultants; and

• final expense and limited liability property policies to middle and lower income households in Louisiana, Arkansas and Mississippi through employee and independent agents in our home service distribution channel and funeral homes.

We were formed in 1969 and historically, our Company has experienced growth through acquisitions in the domestic market and through organic market expansion in the international market.  We strive to generate bottom line returns using knowledge of our niche markets and our well-established distribution channels.

Strategic Initiatives

The Company's Board of Directors and executive management team are continuing their assessment of the Company's international and domestic business models and strategies with the assistance and support of external consultants and advisors.  Our strategic realignment of the Company's international business model is ongoing under the leadership of our Chief Executive Officer, Chief Legal Officer and Chief Marketing Officer.  Specifically, we are focused on (1) introducing new products in the international market and increasing our profitability in both international and domestic markets for our Life Insurance segment and our Home Service Insurance segment; (2) a potential restructuring of our international business and operations that may include withdrawals from certain markets; (3) a strategic modernization and upgrade from our legacy technology systems and IT operations with a focus on digitization, our future business needs and cyber risk; (4) effectively operating our international life insurance business in Bermuda through CICA Life Ltd. ("CICA Ltd."); and (5) assessing and optimizing our investment portfolio strategy.

The following pages describe the operations of our two business segments: Life Insurance and Home Service Insurance.  Revenues derived from any single customer did not exceed 10% of consolidated revenues in any of the last three years.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Current Financial Highlights

Financial highlights for the three months ended March 31, 2019 compared to the same period in 2018 were:

• Insurance premiums declined slightly for the three months ended March 31, 2019, totaling $42.5 million, down from $44.0 million for the same period in 2018, a decrease of 3.6%. The decline was driven by fewer first year and renewal premiums in our Life Insurance segment.

• Net investment income was relatively flat for the three months ended March 31, 2019 compared to the corresponding period in 2018, increasing 0.2%. A growing asset base derived from cash flows from our insurance operations offset declining yields resulting from the sustained low interest rate environment.  The average yield on the consolidated portfolio as of the three months ended March 31, 2019 was an annualized rate of 4.08% compared to 4.31% for the same period in 2018.  

• A realized gain of $5.5 million was recorded for the three months ended March 31, 2019 related to the sale of our former corporate headquarters in Austin, Texas. We also recorded realized gains of $602,000 related to fair value changes of our equity securities owned at March 31, 2019 and realized losses of $104,000 related to dispositions of securities from our fixed maturity securities portfolio. OTTI of $225,000 was recorded for the three months ended March 31, 2018 related to a single issuer and we recorded equity losses of $302,000 due to fair value changes.

• Claims and surrenders expense increased8.9% for the three months ended March 31, 2019 compared to the same period in 2018 primarily due to an increase in surrender benefits and matured endowments in the Life Insurance segment.

• General expenses increased117.2% for the three months ended March 31, 2019 compared to the same period in 2018 as the previous period expenses were reduced by $7.2 million due to a decrease in our 7702/72(s) tax compliance best estimate liability from the estimate at year end 2017. We also had additional costs reported in the three months ended March 31, 2019 relating to higher executive compensation, offset partially by reduced audit fees.

Our Operating Segments

Our business is comprised of two operating business segments, as detailed below.

• Life Insurance

• Home Service Insurance

Our insurance operations are the primary focus of the Company, as those operations generate most of our income.  See the discussion under Segment Operations below for detailed analysis.  The amount of insurance, number of policies, and average face amounts of ordinary life policies issued during the periods indicated are shown below.

	Three Months Ended March 31,
	2019					2018
	Amount of Insurance Issued		Number of Policies Issued	Average Policy Face Amount Issued		Amount of Insurance Issued		Number of Policies Issued	Average Policy Face Amount Issued
Life Insurance	$	45,861,092	699	$	65,610	$	58,790,652	1,054	$	55,779
Home Service Insurance	43,290,580		5,915	7,319		49,947,692		6,838	7,304

The number of policies issued decreased 33.7% and 13.5% for the Life and Home Service Insurance segments for the three months ended March 31, 2019, respectively, compared to the same periods in 2018. The decline in new business applications in our Life Insurance segment is driven by ceasing sales in Brazil and terminating agreements with several independent consultants in Latin

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

America that do not meet our vision, values and culture.   Excluding these two factors the number of policies issued by our International business has been flat for the period.  While the number of policies issued has declined in the Life Insurance and Home Service Insurance segments during 2019, the average face amount issued has increased, resulting in overall premium income not declining at the same rate as policy issuances.

Consolidated Results of Operations

A discussion of consolidated results is presented below, followed by a discussion of segment operations and financial results by segment.

Revenues

Revenues are generated primarily by insurance premiums and investment income on invested assets.

		Three Months Ended
		March 31,
		2019		2018
	(In thousands)
Revenues:
Premiums:
Life insurance		$	40,980	42,529
Accident and health insurance		323		291
Property insurance		1,161		1,209
Net investment income		13,796		13,771
Realized investment gains (losses), net		5,961		(575	)
Other income		185		208
Total revenues		$	62,406	57,433

Premium Income.  Premium income derived from life, accident and health, and property insurance sales decreased3.6% for the three months ended March 31, 2019 compared to the same period in 2018. The decrease is driven primarily by a decline in first year and renewal premiums in our Life Insurance segment. See the detail distribution of premiums within Segment Operations discussion below.

Net Investment Income. Net investment income performance is summarized as follows.

	March 31,			December 31,		March 31,
	2019			2018		2018
	(In thousands, except for %)
Net investment income, annualized	$	55,185		54,205		55,084
Average invested assets, at amortized cost	1,352,299			1,300,755		1,277,670
Annualized yield on average invested assets	4.08		%	4.17	%	4.31	%

The annualized yield declined 23 basis points during the first quarter of 2019 compared to the same period in 2018, despite an increase in average invested assets. We have traditionally invested in fixed maturity securities with a large percentage held in callable issues.  In the fourth quarter of 2018, we began a process of repositioning our portfolio into more diversified holdings and maturities as part of our investment management strategy. We have increased our purchases of AA rated mortgage backed securities

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

while reducing our municipal holdings. While these securities generally have a higher rating than our municipal holdings, average yields are lower. In addition, as a substantial proportion of our fixed maturity investments continue to be called, we have faced challenges in finding investments with comparable yields in the continued low interest rate environment.

Investment income from debt securities accounted for approximately 87.5% of total investment income for the three months ended March 31, 2019.  

		Three Months Ended
		March 31,
		2019			2018
	(In thousands)
Gross investment income:
Fixed maturity securities		$	12,514		12,424
Equity securities		157			160
Mortgage loans		3			3
Policy loans		1,601			1,535
Long-term investments		1			—
Other investment income		24			30
Total investment income		14,300			14,152
Investment expenses		(504		)	(381	)
Net investment income		$	13,796		13,771

Fixed maturity securities income increased 0.7% during the three months ended March 31, 2019 compared to the same period in 2018. In addition, the increase in policy loans, which represents policyholders utilizing their accumulated policy cash value to pay for premiums, contributed to the increase in investment income.

Realized Investment Gains (Losses), Net.  A realized gain was recorded for the three months ended March 31, 2019 of $5.5 million from the sale of our former corporate headquarters in Austin, TX. We recorded realized losses in the three months ended March 31, 2019 of $104,000 related to our fixed maturity securities portfolio and gains of $602,000 due to fair value changes related to equity securities still owned at March 31, 2019.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Benefits and Expenses

		Three Months Ended
		March 31,
		2019			2018
	(In thousands)
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		$	23,033		21,151
Increase in future policy benefit reserves		12,299			14,608
Policyholders' dividends		1,182			1,307
Total insurance benefits paid or provided		36,514			37,066
Commissions		7,884			8,959
Other general expenses		14,132			6,507
Capitalization of deferred policy acquisition costs		(4,828		)	(5,963	)
Amortization of deferred policy acquisition costs		6,277			7,606
Amortization of cost of customer relationships acquired		419			679
Total benefits and expenses		$	60,398		54,854

Claims and Surrenders.  A detail of claims and surrender benefits is provided below.

		Three Months Ended
		March 31,
		2019		2018
	(In thousands)
Death claims		$	6,487	6,183
Surrender benefits		9,739		9,159
Endowments		3,076		3,192
Matured endowments		2,681		1,424
Property claims		218		385
Accident and health benefits		58		81
Other policy benefits		774		727
Total claims and surrenders		$	23,033	21,151

• Death claims increased4.9% for the three months ended March 31, 2019 compared to the same period in 2018. Mortality experience is closely monitored by the Company and the activity is within expected levels.

• Surrenders increased6.3% for the three months ended March 31, 2019 compared to the same period in 2018. Surrenders represented 0.2% of direct ordinary whole life insurance in force for the three months ended March 31, 2019. The increase in surrender expense is primarily related to our international business. A significant portion of surrenders relate to policies that have been in force over fifteen years and no longer have associated surrender charges. Total direct insurance in force as of March 31, 2019 was $4.8 billion, a slight decrease from 2018.

• Matured endowments increased 88.3% for the three months ended March 31, 2019 compared to the same period in 2018. We anticipated this increase based upon the dates of when our policy endowment contracts were sold and their expected maturities as set forth in the contracts.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Increase in Future Policy Benefit Reserves.  The change in future policy benefit reserves decreased15.8% for the three months ended March 31, 2019 compared to the same period in 2018, primarily due to increased surrenders and maturities from our international business.

Policyholders' Dividends.  Policyholders' dividends decreased slightly for the three months ended March 31, 2019 compared to the same period in 2018. This decrease was due to changes in persistency and production.

Commissions. Commission expense for the three months ended March 31, 2019 fluctuated directly in relation to the decrease in first year and renewal premiums compared to premium levels for the three months ended March 31, 2018.  

Other General Expenses. Expenses increased substantially for the three months ended March 31, 2019 compared to the same period in 2018 as the previous period expenses were reduced by $7.2 million due to a decrease in our 7702/72(s) tax compliance best estimate liability from the estimate at year end 2017. We have continued to refine our estimate as we prepare to submit offers to enter into closing agreements with the IRS related to these matters. We also had additional costs related to salaries, bonuses and other compensation paid to executive officers for the three months ended March 31, 2019 compared to the same period last year. Audit fees were lower during the three months ended March 31, 2019, compared to the first quarter of 2018.

Capitalized and Amortized Deferred Policy Acquisition Costs.  Costs capitalized include certain commissions, policy issuance costs, and underwriting and agency expenses that relate to successful sales efforts for insurance contracts.  Capitalized costs decreased for the three months ended March 31, 2019 compared to the same period in 2018 as we experienced a decline in first year premium production in the current period, which decreased capitalized amounts.  Commissions paid on renewal premiums are significantly lower than those paid on first year business. The decline in production also resulted in much lower amortization for the three months ended March 31, 2019 compared to the first quarter of 2018. Amortization of deferred policy acquisition costs is also impacted by persistency and may fluctuate from quarter to quarter.

Federal Income Tax. Tax expense increased as our effective tax rate was 289.3% for the three months ended March 31, 2019 as compared to 98.5% for the same period in 2018.  CICA Ltd., a wholly owned subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes and CICA Ltd.'s activity gives rise to taxable income in the U.S. as Subpart F Income. As of March 31, 2019, the Subpart F income inclusion generated $0.7 million of federal income tax expense, which impacted the current tax rate. In addition, for the three months ended March 31, 2019 the Company's tax rate was impacted by sale of our former corporate headquarters and impact of our uncertain tax position. Differences between our effective tax rate and the statutory tax rate result from income and expense items that are treated differently for financial reporting and tax purposes, as well as impacts from our tax compliance issues and uncertain tax positions.  See Note 8. Income Taxes in the notes to our consolidated financial statements.

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March 31, 2019

Segment Operations

The Company has two reportable segments:  Life Insurance and Home Service Insurance.  These segments are reported in accordance with U.S. GAAP.  The Company also operates other non-insurance portions of the Company, which primarily include the Company's IT and Corporate-support functions, which are included in the table presented below to properly reconcile the segment information with the consolidated financial statements of the Company. The Company evaluates profit and loss performance of its segments based on income before federal income taxes.

		Three Months Ended
		March 31,
		2019			2018
Segments:	(In thousands)
Life Insurance		$	4,637		5,948
Home Service Insurance		(334		)	(1,823	)
Total segments		4,303			4,125
Other Non-Insurance enterprises		(2,295		)	(1,546	)
Income before federal income tax expense		$	2,008		2,579

Life Insurance

Our Life Insurance segment issues ordinary whole life insurance in the U.S. and in U.S. Dollar-denominated amounts to foreign residents.  These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and can utilize rider benefits to provide additional increasing or decreasing coverage and annuity benefits to enhance accumulations.  Additionally, endowment contracts are issued by the Company, which are principally accumulation contracts that incorporate an element of life insurance protection.  For the majority of our business, we retain the first $100,000 of risk on any one life, reinsuring the remainder of the risk.  Historically, we have operated this segment through our CICA and CNLIC insurance subsidiaries. Since, July 1, 2018, we have operated the international business in this segment through CICA Ltd.

International Sales

We focus our sales of U.S. Dollar-denominated ordinary whole life insurance and endowment policies to residents in Latin America and the Pacific Rim.  We have participated in the foreign marketplace since 1975.  We believe positive attributes of our international insurance business include:

• larger face amount policies typically issued when compared to our U.S. operations, which results in lower underwriting and administrative costs per unit of coverage;

• premiums typically paid annually rather than monthly or quarterly, which reduces our administrative expenses, accelerates cash flow and results in lower policy lapse rates than premiums with more frequently scheduled payments; and

• persistency experience and mortality rates that are comparable to U.S. policies.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

International Products

We offer several ordinary whole life insurance and endowment products designed to meet the needs of our non-U.S. policyholders.  These policies have been structured to provide:

• U.S. Dollar-denominated cash values that accumulate, beginning in the first policy year, to a policyholder during his or her lifetime;

• premium rates that are competitive with most foreign local companies;

• a hedge against local currency inflation;

• protection against devaluation of foreign currency;

• capital investment in a more secure economic environment (i.e., the U.S.); and

• lifetime income guarantees for an insured or for surviving beneficiaries.

Our international products have living benefit features. Most policies contain guaranteed cash values and are participating (i.e., provides for cash dividends as apportioned by the board of directors).  Once a policyholder pays the annual premium and the policy is issued, the owner becomes entitled to policy cash dividends as well as annual premium benefits, if the annual premium benefit was elected.  According to the policy language, the policyholder has several options with regard to the policy dividends and annual premium benefits. Any annual policy cash dividend may, at the option of the policyholder and provided the value of a dividend is not encumbered by a policy loan, be applied under one of the following options: (1) paid in cash to the policy owner; (2) credited toward payment of premiums on the policy; (3) left with the Company to accumulate at a defined interest rate; (4) applied to increase the amount of insurance benefit by purchase of paid-up additions to the policy; or (5) be assigned to a third party. If the policy is encumbered by a loan, only option 3 will apply to secure the outstanding loan. Similarly, all annual premium benefits credited to the policy may at the option of the policyholder, and provided the policy is not encumbered by a policy loan, be applied under one of the following options: (1) paid in cash to the policy owner; (2) credited toward payment of premiums on the policy; (3) left with the Company to accumulate at an annually company declared interest rate; or (4) be assigned to a third party. Likewise, if the policy is encumbered by a loan, only option (3) will apply to secure the outstanding loan. Under the "assigned to a third party" provision, the Company has historically allowed policyholders, after receiving a copy of the Citizens, Inc. Stock Investment Plan (the "CISIP") prospectus and acknowledging their understanding of the risks of investing in Citizens Class A common stock, the right to assign policy values outside of the policy to the CISIP, which is administered in the U.S. by Computershare, Trust Company, N.A., our plan administrator and an affiliate of Computershare Inc., our transfer agent. The CISIP is a direct stock purchase plan available to policyholders, shareholders, our employees and directors, independent consultants, and other potential investors through the Computershare website. The Company has registered the shares of Class A common stock issuable to participants under the CISIP on a registration statement under the Securities Act of 1933, as amended (the "Securities Act") that is on file with the Securities and Exchange Commission. Computershare administers the CISIP in accordance with the terms and conditions of the CISIP, which is available on the Computershare website and as part of the Company’s registration statement on file with the Securities and Exchange Commission.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

The following table sets forth, by country, our direct premiums from the top five premium producing countries in our international life insurance business for the three months ended March 31, 2019 and 2018 as indicated below.

		Three Months Ended
		March 31,
		2019		2018
	(In thousands)
Country
Colombia		$	5,960	6,053
Venezuela		5,305		6,041
Taiwan		4,765		4,792
Ecuador		3,238		3,664
Argentina		1,981		1,972
Other Non-U.S.		8,477		8,718
Total		$	29,726	31,240

We reported declines in premiums during the three months ended March 31, 2019 and continue to monitor key indicators in these markets for signs of weakening sales. This business is dependent on our clients having access to U.S. dollars. Our international business may also be affected by our ongoing strategic review of our business model and by economic or other events in foreign countries in which our policies are marketed. In April 2018, in connection with our review of our international business model, we discontinued accepting life insurance applications from Brazilian citizens or residents. Brazil had traditionally been one of our top 5 premium-producing countries in our international life insurance business for the past several years. We recorded premiums from the Brazilian portion of our business of $1.8 million, or 5.9% of total international premiums, as of March 31, 2019 and $2.1 million, or 6.8% of total international premiums, as of March 31, 2018. We also terminated agreements with several independent consultants in Latin America who do not meet our vision, values, and culture.

Direct premiums from Venezuela have declined as Venezuela continues to experience widespread public demonstrations against crime, corruption and soaring inflation and poor utility infrastructure, and we expect that overall premiums from Venezuela will continue to decline if the deteriorating political and economic environment and infrastructure continue to adversely impact our ability to make sales and collect premiums. Our international business and premium collections also could be impacted by our inability to comply with current or future foreign laws or regulations applicable to the Company or our independent consultants

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March 31, 2019

in the countries from which we accept applications as well as by marketing or operational changes made by the Company to comply with those laws or regulations. See Part II, Item 1A. Risk Factors for additional information.

Domestic Sales

Most of our domestic inforce business results from blocks of business of insurance companies we have acquired over the past 20 years.  We discontinued new sales of our non-home service domestic products beginning January 1, 2017.

The following table sets forth our direct premiums by state for the top five premium producing U.S. states for the three months ended March 31, 2019 and 2018 as indicated below.

		Three Months Ended
		March 31,
		2019		2018
	(In thousands)
State
Texas		$	440	390
Indiana		240		278
Florida		128		146
Missouri		103		102
Louisiana		59		62
Other States		411		427
Total		$	1,381	1,405

We report premiums based upon the current residence of our policyholders. A number of domestic life insurance companies we acquired had blocks of accident and health insurance policies, which we did not consider to be a core part of our business.  We have ceded the majority of our accident and health insurance business to an unaffiliated insurance company under a coinsurance agreement.

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March 31, 2019

The results of operations for the Life Insurance segment for the periods indicated are as follows.

		Three Months Ended
		March 31,
		2019			2018
	(In thousands)
Revenue:
Premiums		$	30,914		32,360
Net investment income		10,169			10,130
Realized investment gains (losses), net		5,457			(185	)
Other income (loss)		183			209
Total revenue		46,723			42,514
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		17,162			15,291
Increase in future policy benefit reserves		11,313			13,582
Policyholders' dividends		1,172			1,297
Total insurance benefits paid or provided		29,647			30,170
Commissions		4,373			5,228
Other general expenses		6,205			(884	)
Capitalization of deferred policy acquisition costs		(3,702		)	(4,640	)
Amortization of deferred policy acquisition costs		5,441			6,540
Amortization of cost of customer relationships acquired		122			152
Total benefits and expenses		42,086			36,566
Income before federal income tax expense		$	4,637		5,948

Premiums.  Premium revenues decreased4.5% for the three months ended March 31, 2019, compared to the same period in 2018 due primarily to a decrease in both first year and renewal international business. First year premium revenues declined for the three months ended March 31, 2019 as we experienced a decline in applications received from Venezuela and other countries to a lesser extent. We believe that the decline in new business is driven by several factors, including the political instability in Venezuela, ceasing sales in Brazil, and slower acceptance of the new product set that was repriced and submitted to the market beginning in 2017. Sales internationally have continued to be driven by our endowment to age sixty-five and twenty-year endowment products which have been the top performers for the last several years.

Life insurance premium breakout is detailed below.

		Three Months Ended
		March 31,
		2019		2018
	(In thousands)
Premiums:
First year		$	2,274	3,074
Renewal		28,640		29,286
Total premiums		$	30,914	32,360

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Net Investment Income.  Net investment income increased primarily due to the growth in average invested assets.

	Three Months Ended			Year Ended		Three Months Ended
	March 31,			December 31,		March 31,
	2019			2018		2018
	(In thousands, except for %)
Net investment income, annualized	$	40,677		39,985		40,520
Average invested assets, at amortized cost	1,003,732			958,135		938,665
Annualized yield on average invested assets	4.05		%	4.17	%	4.32	%

The annualized yield has declined compared to the first quarter of 2018. While our average invested assets have continued to grow, we have a high proportion of callable fixed maturity securities in our investment portfolio. As these securities have been called, it has been challenging to find investments with comparable yields in the continued low interest rate environment. In addition, we have repositioned our portfolio to include more highly rated, but lower yielding mortgage backed securities.

Realized Investment Gains (Losses), Net. Realized gains of $5.5 million were recorded for the three months ended March 31, 2019 due primarily to a $5.5 million recognized gain from the sale of our former corporate headquarters in Austin, Texas. In addition, we recognized losses of $65,000 due to the strategic repositioning of our fixed maturity securities portfolio and gains of $23,000 due to equity securities fair value adjustments during the first quarter of 2019. We also recorded realized investment losses for the three months ended March 31, 2018 that were primarily due to an additional impairment of one single issuer which totaled $150,000.

Claims and Surrenders.  These amounts fluctuate from period to period but were within anticipated ranges based upon management's expectations.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

		Three Months Ended
		March 31,
		2019		2018
	(In thousands)
Death claims		$	1,848	1,599
Surrender benefits		8,875		8,424
Endowment benefits		3,074		3,189
Matured endowments		2,558		1,302
Accident and health benefits		38		54
Other policy benefits		769		723
Total claims and surrenders		$	17,162	15,291

• Death claims expense was unfavorable for the three months ended March 31, 2019 compared with the same period in 2018. Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.

• Surrenders increased 5.4% for the three months ended March 31, 2019 compared to the same period in 2018. As we have a maturing book of business, the majority of policy surrender benefits paid are in the later durations after the surrender charges have been reduced or ended.

• Endowment benefit expense primarily results from the election by policyholders of a product feature providing an annual guaranteed benefit.  This is a fixed benefit over the life of the contract, thus this expense will vary with new sales and persistency of the business.

• Matured endowments increased 96.5% for the three months ended March 31, 2019 compared to the same period in 2018, as a large number of our endowment contracts reached maturity in the current period. We anticipate this trend will continue as endowments products sold reach their stated maturities.

• Other policy benefits resulted primarily from interest paid on premium deposits and policy benefit accumulations.

Increase in Future Policy Benefit Reserves.  The decrease in policy benefit reserves for the three months ended March 31, 2019 compared to the same period in 2018 was due primarily to the decline in new premium income and increase in surrender and maturity activity in the current period as described above.

Policyholders' Dividends. Policyholders' dividends were comparable for both the three months ended March 31, 2019 and 2018 as we adjusted our dividend rates for later durations in our policies beginning in 2016.

Commissions.  Commission expense decreased for the three months ended March 31, 2019 compared to the same period in 2018.  This expense fluctuates directly with new premium revenues as commission rates paid are higher on first year premium sales, which were down for the three months ended March 31, 2019 compared to the same period in 2018.  

Other General Expenses.   Expenses increased for the three months ended March 31, 2019 compared to the same period in 2018. The increase primarily relates to the large reduction in the 7702 tax compliance estimated costs we recorded in the first quarter of 2018. Our best estimate liability is usually adjusted each quarter as we refine our estimate in preparation for submitting offers to enter into closing agreements with the IRS. We also had additional costs related to salaries, bonuses and other compensation paid to executive officers for the three months ended March 31, 2019 compared to the same period last year.  Audit fees were lower during the three months ended March 31, 2019, compared to the first quarter of 2018.

Capitalization of Deferred Policy Acquisition Costs ("DAC").  Capitalized costs fluctuate in direct relation to commissions, decreasing for the three months ended March 31, 2019, based upon first year and renewal premiums and commissions paid compared to the same period in 2018.  

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Amortization of Deferred Policy Acquisition Costs.  Amortization costs fluctuate with changes in first year premium activity, surrenders, and persistency in general. As previously described, persistency is monitored closely by the Company.

Home Service Insurance

We operate in the Home Service insurance market through our subsidiaries Security Plan Life Insurance Company ("SPLIC"), Magnolia Guaranty Life Insurance Company ("MGLIC") and Security Plan Fire Insurance Company ("SPFIC"), and focus on the life insurance needs of the middle and lower income markets, primarily in Louisiana, Mississippi and Arkansas.  Our policies are sold and serviced through a home service marketing distribution system of employee-agents who work full time on a route system and through funeral homes that sell policies, collect premiums and service policyholders.

The following table sets forth our direct premiums by state for the periods indicated.

		Three Months Ended
		March 31,
		2019		2018
	(In thousands)
State
Louisiana		$	10,643	10,670
Mississippi		506		567
Arkansas		387		416
Other States		227		231
Total		$	11,763	11,884

Home Service Insurance Products

Our home service insurance products consist primarily of small face amount ordinary whole life and pre-need policies, which are designed to fund final expenses for the insured, primarily consisting of funeral and burial costs.  To a much lesser extent, our Home Service Insurance segment sells limited-liability, named-peril property policies covering dwellings and contents.  We provide $30,000 maximum coverage on any one dwelling and contents, while content only coverage and dwelling only coverage is limited to $20,000, respectively.

We provide final expense ordinary life insurance and annuity products primarily to middle and lower income individuals in Louisiana, Mississippi and Arkansas.  

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

The results of operations for the Home Service Insurance segment for the periods indicated are as follows.

		Three Months Ended
		March 31,
		2019			2018
	(In thousands)
Revenue:
Premiums		$	11,550		11,669
Net investment income		3,086			3,302
Realized investment gains (losses), net		484			(352	)
Other income (loss)		1			(1	)
Total revenue		15,121			14,618
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		5,871			5,860
Increase in future policy benefit reserves		986			1,026
Policyholders' dividends		10			10
Total insurance benefits paid or provided		6,867			6,896
Commissions		3,511			3,731
Other general expenses		5,070			5,544
Capitalization of deferred policy acquisition costs		(1,126		)	(1,323	)
Amortization of deferred policy acquisition costs		836			1,066
Amortization of cost of customer relationships acquired		297			527
Total benefits and expenses		15,455			16,441
Income (loss) before federal income tax expense		$	(334	)	(1,823	)

Premiums.  Premiums were down slightly for the three months ended March 31, 2019 compared to the same period in 2018.

Net Investment Income.  Net investment income for our Home Service Insurance segment declined during the three months ending March 31, 2019 compared to the same period in 2018 as a fall in yields and an increase in investment expenses offset a slight increase in average invested assets. As previously described, it has been challenging to find attractive yields in the current low interest rate environment. Net investment income yield for our Home Service segment is summarized below.

	Three Months Ended			Year Ended		Three Months Ended
	March 31,			December 31,		March 31,
	2019			2018		2018
	(In thousands, except for %)
Net investment income, annualized	$	12,755		13,125		13,208
Average invested assets, at amortized cost	292,262			290,443		291,301
Annualized yield on average invested assets	4.36		%	4.52	%	4.53	%

Realized Investment Gains (Losses), Net.  Realized net gains for the three months ended March 31, 2019 were primarily related to equity securities fair value adjustments of $516,000, as financial markets performed well in the first quarter of 2019. In addition, strategic repositioning of our fixed maturity securities portfolio resulted in realized losses of $32,000 during the quarter. We

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

recorded losses of $259,000 due to fair value changes related to equity securities and an additional impairment on one bond issuer totaling $75,000 for the three months ended March 31, 2018.

Claims and Surrenders.  These amounts fluctuate from period to period but were within anticipated ranges based upon management's expectations.

		Three Months Ended
		March 31,
		2019		2018
	(In thousands)
Death claims		$	4,639	4,584
Surrender benefits		864		735
Endowment benefits		2		3
Matured endowments		123		122
Property claims		218		385
Accident and health benefits		20		27
Other policy benefits		5		4
Total claims and surrenders		$	5,871	5,860

• Death claims expense fluctuates based upon reported claims. We experienced small increase in reported claims in the three months ended March 31, 2019 compared to the same period in 2018. Mortality experience is closely monitored by the Company as a key performance indicator and amounts were within expected levels.

• Surrender benefits increased for the three months ended March 31, 2019, within anticipated ranges based on management expectations.

• Property claims decreased for the three months ended March 31, 2019, as we experienced favorable weather-related claim activity in 2019 compared to the same period in 2018.

Increase in Future Policy Benefit Reserves.  The change in future policy benefit reserves for the three months ended March 31, 2019 was consistent with sales and surrender activity compared to the same period in 2018.

Commissions.  Commission expense decreased for the three months ended March 31, 2019 compared to the same period in 2018, consistent with premium collection levels. In addition, management initiated a change in commission policy in 2018 that has resulted in generally lower commission payouts.

Other General Expenses.  Expenses are allocated by segment based upon an annual expense study performed by the Company. Expenses declined for the three months ended March 31, 2019, compared to the same period in 2018, due primarily to lower costs of audit fees related to the 2018 audit incurred in 2019, compared to 2017 audit fees incurred in the first quarter of 2018.

Capitalization of Deferred Policy Acquisition Costs ("DAC").  Capitalized costs decreased for the three months ended March 31, 2019.  DAC capitalization is directly correlated to fluctuations in new business and commissions.

Amortization of Deferred Policy Acquisition Costs.  Amortization for the three months ended March 31, 2019declined compared to the corresponding period in 2018 due to lower first year production and commissions in the current quarter.

Amortization of Cost of Customer Relationships Acquired. Amortization decreased, mainly due to an annual review and true up performed in the three months ended March 31, 2019.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Other Non-Insurance Enterprises

This represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under GAAP. The loss reported for the three months of 2019 and 2018 is typical since the elimination of intercompany revenue is the primary source of revenue.

Investments

The administration of our investment portfolios is handled by our management and a third-party investment manager pursuant to board-approved investment guidelines, with all trading activity approved by a committee of each entity's respective boards of directors.  The guidelines used require that fixed maturities, both government and corporate, are investment grade and comprise a majority of the investment portfolio.  State insurance statutes prescribe the quality and percentage of the various types of investments that may be made by insurance companies and generally permit investment in qualified state, municipal, federal and foreign government obligations, high quality corporate bonds, preferred and common stock, mortgage loans and real estate within certain specified percentages.  The assets are intended to mature in accordance with the average maturity of the insurance products and provide the cash flow for our insurance company subsidiaries to meet their respective policyholder obligations.

The following table shows the carrying value of our investments by investment category and cash and cash equivalents, and the percentage of each to total invested cash, cash equivalents and investments.

	March 31, 2019			December 31, 2018
	Carrying Value		% of Total Carrying Value	Carrying Value		% of Total Carrying Value
	(In thousands)			(In thousands)
Marketable debt securities:
U.S. Treasury and U.S. Government-sponsored enterprises	$	15,713	1.1	$	15,554	1.1
States and political subdivisions	698,115		48.5	720,115		52.0
Corporate	454,434		31.5	381,796		27.5
Mortgage-backed (1)	122,368		8.5	108,698		7.8
Asset-backed	4,765		0.3	4,757		0.3
Foreign governments	119		—	119		—
Total fixed maturity securities	1,295,514		89.9	1,231,039		88.7
Short-term investments	7,914		0.5	7,865		0.6
Cash and cash equivalents	34,093		2.4	45,492		3.3
Other investments:
Policy loans	81,474		5.7	80,825		5.8
Equity securities	15,672		1.1	15,068		1.1
Mortgage loans	185		—	186		—
Real estate and other long-term investments	5,715		0.4	7,223		0.5
Total cash, cash equivalents and investments	$	1,440,567	100.0	$	1,387,698	100.0

⁽¹⁾ Includes $121.3 million and $108.5 million of U.S. Government-sponsored enterprises at March 31, 2019 and December 31, 2018, respectively.

Cash and cash equivalents decreased as of March 31, 2019 due to timing of cash inflows and investments of cash into marketable securities.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

The following table sets forth the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, 2019 and December 31, 2018.

	March 31, 2019			December 31, 2018
	Carrying Value		% of Total Carrying Value	Carrying Value		% of Total Carrying Value
	(In thousands)			(In thousands)
AAA	$	95,866	7.4	$	96,333	7.8
AA	549,989		42.5	551,978		44.8
A	312,124		24.1	281,553		22.9
BBB	314,838		24.2	277,584		22.6
BB and other	22,697		1.8	23,591		1.9
Totals	$	1,295,514	100.0	$	1,231,039	100.0

Credit ratings reported for the periods indicated are assigned by a Nationally Recognized Statistical Rating Organization ("NRSRO") such as Moody’s Investors Service, Standard & Poor’s or Fitch Ratings.  A credit rating assigned by an NRSRO is a quality based rating, with AAA representing the highest quality and D the lowest, with BBB and above being considered investment grade.  In addition, the Company may use credit ratings of the National Association of Insurance Commissioners ("NAIC") Securities Valuation Office ("SVO") as assigned, if there is no NRSRO rating.  Securities rated by the SVO are grouped in the equivalent NRSRO category as stated by the SVO and securities that are not rated by an NRSRO are included in the "other" category.

The Company has no direct sovereign European debt exposure as of March 31, 2019.  

As of March 31, 2019, the Company held municipal securities that include third party guarantees.  Detailed below is a presentation by NRSRO rating of our municipal holdings by funding type.

Municipal securities shown including third party guarantees

	March 31, 2019
	General Obligation			Special Revenue		Other		Total		% Based on
	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Amortized Cost
	(In thousands)
AAA	$	56,042	55,469	31,833	31,629	—	—	87,875	87,098	12.7
AA	144,960		142,733	233,802	230,748	23,103	22,476	401,865	395,957	57.7
A	23,757		23,265	143,069	139,000	10,821	10,330	177,647	172,595	25.2
BBB	5,809		5,823	13,640	13,556	1,459	1,381	20,908	20,760	3.0
BB and other	5,579		5,536	4,241	4,195	—	—	9,820	9,731	1.4
Total	$	236,147	232,826	426,585	419,128	35,383	34,187	698,115	686,141	100.0

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Municipal securities shown excluding third party guarantees

	March 31, 2019
	General Obligation			Special Revenue		Other		Total		% Based on
	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Amortized Cost
	(In thousands)
AAA	$	21,887	21,768	10,157	10,149	—	—	32,044	31,917	4.7
AA	119,603		118,393	168,637	167,142	16,238	15,768	304,478	301,303	43.8
A	50,473		49,631	174,020	169,313	13,614	13,023	238,107	231,967	33.8
BBB	10,919		10,793	30,001	29,531	—	—	40,920	40,324	5.9
BB and other	33,265		32,241	43,770	42,993	5,531	5,396	82,566	80,630	11.8
Total	$	236,147	232,826	426,585	419,128	35,383	34,187	698,115	686,141	100.0

The Company held investments in special revenue bonds that had a greater than 10% exposure based upon activity as noted in the table below.

	Fair Value		Amortized Cost	% of Total Fair Value
	(In thousands)
Utilities	$	144,212	141,208	20.8	%
Education	111,597		109,462	16.1	%
General Obligations	72,271		71,245	10.4	%

The Company's exposure of municipal holdings is spread across many states, with Texas and Florida as the two states with the largest municipal holdings as of March 31, 2019. The Company holds 21.1% of its municipal security holdings in Texas issuers and 12.7% in Florida issuers based on fair value. There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal portfolio as of March 31, 2019.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

The tables below represent the exposure the Company holds in these two states.

	March 31, 2019
	General Obligation			Special Revenue		Other		Total
	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost
	(In thousands)
Texas securities including third party guarantees
AAA	$	54,046	53,495	16,044	15,870	—	—	70,090	69,365
AA	35,515		35,222	23,722	23,340	—	—	59,237	58,562
A	—		—	9,630	9,386	—	—	9,630	9,386
BBB	—		—	6,544	6,476	—	—	6,544	6,476
BB and other	728		728	1,215	1,188	—	—	1,943	1,916
Total	$	90,289	89,445	57,155	56,260	—	—	147,444	145,705
Texas securities excluding third party guarantees
AAA	$	20,449	20,334	936	939	—	—	21,385	21,273
AA	53,179		52,630	25,264	24,988	—	—	78,443	77,618
A	13,675		13,563	17,222	16,805	—	—	30,897	30,368
BBB	1,213		1,187	7,098	7,013	—	—	8,311	8,200
BB and other	1,773		1,731	6,635	6,515	—	—	8,408	8,246
Total	$	90,289	89,445	57,155	56,260	—	—	147,444	145,705

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

	March 31, 2019
	General Obligation			Special Revenue		Other		Total
	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost
	(In thousands)
Florida securities including third party guarantees
AAA	$	503	501	3,491	3,489	—	—	3,994	3,990
AA	—		—	57,119	56,710	5,129	5,088	62,248	61,798
A	—		—	11,700	11,625	10,594	10,105	22,294	21,730
Total	$	503	501	72,310	71,824	15,723	15,193	88,536	87,518
Florida securities excluding third party guarantees
AAA	$	503	501	—	—	—	—	503	501
AA	—		—	44,677	44,438	3,559	3,557	48,236	47,995
A	—		—	23,431	23,251	10,593	10,105	34,024	33,356
BB and other	—		—	4,202	4,135	1,571	1,531	5,773	5,666
Total	$	503	501	72,310	71,824	15,723	15,193	88,536	87,518

Valuation of Investments

We evaluate the carrying value of our fixed maturity and equity securities at least quarterly.  The Company monitors all debt and equity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews.  The assessment of whether other-than-temporary impairments have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value.  The Company determines other-than-temporary impairment by reviewing all relevant evidence related to the specific security issuer as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

When an other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis.  If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment's cost and its fair value at the balance sheet date.  If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary impairment is separated into the following: (a) the amount representing the credit loss; and (b) the amount related to all other factors.  The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.  The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income, net of applicable taxes.  The previous amortized cost basis less the other-than-temporary impairment recognized in earnings becomes the new amortized cost basis of the investment.  The new amortized cost basis is not adjusted for subsequent recoveries in fair value.

There were no other-than-temporary impairments recorded for the three months ended March 31, 2019. The Company recognized other-than-temporary impairments of $225,000 during the three months ended March 31, 2018.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

March 31, 2019

Liquidity and Capital Resources

Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations.  Liquidity is managed on insurance operations to ensure stable and reliable sources of cash flows to meet obligations and is provided by a variety of sources.

Our liquidity requirements are met primarily by funds provided from operations.  Premium deposits and revenues, investment income and investment maturities are the primary sources of funds, while investment purchases, policy benefits, and operating expenses are the primary uses of funds.  We historically have not had to liquidate investments to provide cash flow, and there were no liquidity issues during the three months ended March 31, 2019.  Our investments consist of 92.1% of marketable debt securities classified as available-for-sale and 1% of equity securities that could be readily converted to cash for liquidity needs.

A primary liquidity concern is the risk of an extraordinary level of early policyholder withdrawals.  We include provisions in our insurance policies, such as surrender charges, that help limit and discourage early withdrawals.  Since these contractual withdrawals, as well as the level of surrenders experienced, have been largely consistent with our assumptions in asset liability management, our associated cash outflows historically have not had an adverse impact on our overall liquidity.  Individual life insurance policies are less susceptible to withdrawal than annuity reserves and deposit liabilities because policyholders may incur surrender charges and undergo a new underwriting process in order to obtain a new insurance policy.  Cash flow projections and cash flow tests under various market interest rate scenarios are also performed annually to assist in evaluating liquidity needs and adequacy.  

Our whole life and endowment products provide the policyholder with alternatives once the policy matures. The policyholder can choose to take a lump sum payout or leave the money on deposit at interest with the Company. The Company has a significant amount of endowment products representing over 50% of total insurance in force with older contracts sold historically that will begin reaching their maturities over the next several years and policyholder election behavior is not known. If a large number of policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities. Meeting these distributions could require the Company to sell securities at inopportune times to pay policyholder withdrawals. Alternatively, if the policyholders were to leave the money on deposit with the Company at interest, our profitability could be negatively impacted if the product guaranteed rate is higher than the current market rate we can earn on our investments. We currently anticipate that available liquidity sources and future cash flows will be adequate to meet our needs for funds, but we will monitor closely our policyholder behavior patterns.

A large portion of our debt security investment portfolio will mature in the next seven years and could be called sooner. We were subject to significant call activity beginning in 2009 due to the declining interest rate environment, which required us to reinvest in debt securities with shorter durations that are now approaching maturity. We will need to reinvest these maturing funds in the current interest rate environment. Our profitability could be negatively impacted depending on the market rates at the time of reinvestment. This could result in a decrease in our spread between our policy liability crediting rates and our investment earned rates which could also negatively impact our liquidity.

Cash flows from our insurance operations historically have been sufficient to meet current needs.  Cash flows from operating activities were $17.9 million and $22.0 million for the three months ended March 31, 2019 and March 31, 2018, respectively.  We have traditionally also had significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments.  These cash flows, for the most part, are reinvested in fixed income securities.  Net cash outflows from investing activities totaled $28.8 million and $27.1 million for the three months ended March 31, 2019 and March 31, 2018, respectively. The investing activities fluctuate from period to period due to timing of securities activities such as calls and maturities and reinvestment of those funds. 

We have established an estimated liability of $10.0 million, net of tax, as of March 31, 2019 for probable liabilities and expenses associated with a tax compliance matter related to the qualification of certain of our policies as described in Note 7. Commitments and Contingencies, which represents management’s estimate. We have disclosed an estimated range related to probable liabilities and expenses of $6.0 million to $52.5 million, net of tax. This estimated range includes projected taxes, interest and penalties payable to the IRS, as well as estimated increased payout obligations to current holders of non-compliant domestic life insurance policies expected to result from remediation of those policies. The amount of our liabilities and expenses depends on a number

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of uncertainties, including the number of prior tax years for which we may be liable to the IRS, the number of domestic life insurance policies we will be required to remediate, and the methodology applicable to the calculation of the tax liabilities for policies. Given the range of potential outcomes and the significant variables assumed in establishing our estimates, actual amounts incurred may exceed our reserve and exceed the high end of our estimated range of liabilities and expenses.

The NAIC has established minimum capital requirements in the form of risk-based capital ("RBC").  RBC considers the type of business written by an insurance company, the quality of its assets, and various other aspects of an insurance company's business to develop a minimum level of capital called "Authorized Control Level Risk-based Capital" and compares this level to an adjusted statutory capital that includes capital and surplus as reported under statutory accounting principles, plus certain investment reserves.  Should the ratio of adjusted statutory capital to control level RBC fall below 200%, a series of remedial actions by the affected company would be required. We have a parental guarantee between Citizens, Inc. and CICA Life Insurance Company of America ("CICA"), Citizens' wholly-owned subsidiary domiciled in Colorado, to maintain a RBC level above 350%.

The Bermuda Monetary Authority ("BMA") established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that mandate that a Bermuda-domiciled subsidiary’s Enhanced Capital Requirement ("ECR") be calculated by either (a) Bermuda Solvency Capital Requirement ("BSCR"), or (b) an internal capital model that the BMA has approved for use for this purpose. CICA Ltd., Citizens, Inc.'s wholly-owned subsidiary domiciled in Bermuda, uses the BSCR in calculating its solvency requirements. The Economic Balance Sheet ("EBS") framework is embedded as part of the BSCR and forms the basis of its ECR.

In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation and in moving towards the implementation of a risk-based capital approach, the BMA has established a threshold capital level (termed the Target Capital Level ("TCL")), set at 120 percent of ECR, which serves as an early warning tool for the BMA. Failure to maintain statutory capital at least equal to the TCL would likely result in increased BMA regulatory oversight.

All U.S. insurance subsidiaries were above the RBC minimums at March 31, 2019.  CICA Ltd. held capital in excess of the BSCR requirements at March 31, 2019.

Parent Company Liquidity and Capital Resources

Citizens is a holding company and has had minimal operations of its own.  Our assets consist of the capital stock of our subsidiaries, cash, fixed income securities, mutual funds and investment real estate.  Our cash flows depend primarily upon the availability of statutorily permissible payments, primarily payments under management agreements from our life insurance subsidiaries.  The ability to make payments is limited by applicable laws and regulations of Bermuda and U.S. states of domicile, which subject insurance operations to significant regulatory restrictions.  These laws and regulations require, among other things, that these insurance subsidiaries maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company.  We historically have not relied upon dividends from subsidiaries for our cash flow needs.  However, our subsidiaries have made dividend payments of available funds from time to time in relation to business strategies.  

Contractual Obligations and Off-balance Sheet Arrangements

There have been no material changes in contractual obligations from those reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.  The Company does not have off-balance sheet arrangements at March 31, 2019.  We do not utilize special purpose entities as investment vehicles, nor are there any such entities in which we have an investment that engage in speculative activities of any nature, and we do not use such investments to hedge our investment positions.

Critical Accounting Policies

We have prepared a current assessment of our critical accounting policies and estimates in connection with preparing our interim unaudited consolidated financial statements as of and for the three months ended March 31, 2019 and 2018. We believe that the accounting policies set forth in the notes to our consolidated financial statements and "Critical Accounting Policies and Estimates" in the Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations in our Annual Report

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on Form 10-K for the year ended December 31, 2018 continue to describe the significant judgments and estimates used in the preparation of our consolidated financial statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

The nature of our business exposes us to market risk relative to our invested assets and policy liabilities.  Market risk is the risk of loss that may occur when changes in interest rates and public equity prices adversely affect the value of our invested assets.  Interest rate risk is our primary market risk exposure.  Substantial and sustained increases and decreases in market interest rates can affect the fair value of our investments.  The fair value of our fixed maturity securities portfolio generally increases when interest rates decrease and decreases when interest rates increase. For additional information regarding market risks to which we are subject, see Item 1. Financial Statements - Note 5. Investments - Valuation of Investments in Fixed Maturity and Equity Securities in the notes to our consolidated financial statements for further discussion.

The following table summarizes net unrealized gains and losses as of the dates indicated.

	March 31, 2019				December 31, 2018
	Amortized Cost		Fair Value	Net Unrealized Gains	Amortized Cost	Fair Value	Net Unrealized Gains
	(In thousands)
Total fixed maturities	$	1,259,353	1,295,514	36,161	1,223,747	1,231,039	7,292
Total equity securities	$	15,055	15,672	617	15,055	15,068	13

Market Risk Related to Interest Rates

Our exposure to interest rate changes results from our significant holdings of fixed maturity investments, which comprised 92.1% of our investment portfolio based on carrying value as of March 31, 2019.  These investments are mainly exposed to changes in U.S. Treasury rates.  Our fixed maturity investments include U.S. Government-sponsored enterprises, U.S. Government bonds, securities issued by government agencies, municipal bonds and corporate bonds.  

To manage interest rate risk, we perform periodic projections of asset and liability cash flows to evaluate the potential sensitivity of our investments and liabilities.  We assess interest rate sensitivity annually with respect to our available-for-sale fixed maturities investments using hypothetical test scenarios that assume either upward or downward shifts in the prevailing interest rates.  The changes in fair values of our debt and equity securities as of March 31, 2019 were within the expected range of this analysis.

Changes in interest rates typically have a sizable effect on the fair values of our debt and equity securities.  The interest rate of the ten-year U.S. Treasury bond decreased to 2.41% during the three months ended March 31, 2019, from 2.69% at December 31, 2018.  Net unrealized gains on fixed maturity securities totaled $36.2 million at March 31, 2019, compared to $7.3 million at December 31, 2018.

The fixed maturity securities portfolio is exposed to call risk, as a significant portion of the current bond holdings are callable.  A decreasing interest rate environment can result in increased call activity as experienced over the past several years, and an increasing rate environment will likely result in securities being paid at their stated maturity.

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There are no fixed maturities or other investments classified as trading instruments.  All of the Company's fixed maturities were held in available-for-sale at March 31, 2019.  At March 31, 2019 and December 31, 2018, we had no investments in derivative instruments, nor did we have any subprime or collateralized debt obligation risk.

Market Risk Related to Equity Prices

Changes in the level or volatility of equity prices affect the value of equity securities we hold as investments.  Our equity investments portfolio represented 1.1% of our total investments based upon carrying value at March 31, 2019, with 97.2% invested in diversified equity and bond mutual funds.  In light of our minimal ownership of equity investments, we believe that significant decreases in the equity markets would not have a material adverse impact on our total investment portfolio.

Item 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2019.   Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level due to the material weakness in internal control over financial reporting that was reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Annual Report"), which remains unremediated as of March 31, 2019.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the three months ended March 31, 2019, there were no changes in the Company's internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REMEDIATION OF MATERIAL WEAKNESS

As previously described in Part II, Item 9A of our 2018 Annual Report, we began implementing a remediation plan to address the material weakness in our internal control over financial reporting related to ineffectively designing and maintaining controls to analyze and account for significant and unusual transactions. The material weakness will not be considered remediated until management has designed and implemented internal controls to establish policies and procedures that clearly communicate expectations of personnel regarding significant and unusual transactions. We expect the newly designed and implemented controls to include, among other controls, the preparation and review of sufficiently detailed analysis to evaluate the accounting treatment for all potentially significant impacts of significant and unusual transactions on a timely basis, the engagement of relevant subject matter experts as necessary and the review to ensure advice is appropriately considered in the analysis and conclusions regarding the accounting treatment of significant and unusual transactions. We expect that the remediation of this material weakness will be completed by December 31, 2019.

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PART II.  OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

There are no material pending legal proceedings in which we or any of our subsidiaries is a party or in which any of our or their property is the subject. From time to time we are subject to legal and regulatory actions relating to our business. We may incur defense costs, including attorneys' fees, and other direct litigation costs associated with defending any claims. If we suffer an adverse judgment as a result of litigation claims, it could have a material adverse effect on our business, results of operations and financial condition.

Item 1A.   RISK FACTORS

Investing in our Company involves certain risks.Set forth below are certain risks with respect to our Company.  Readers should carefully review these risks, together with the other information contained in this report.  The risks and uncertainties we have described in this report are not the only ones we face.  Additional risks and uncertainties not presently known to us, or that we currently deem not material, may also adversely affect our business.  Any of the risks discussed in this report or that are presently unknown or not material, if they were to actually occur, could result in a significant adverse impact on our business, operating results, prospects or financial condition.  References in the risk factors below to "we," "us," "our," "Citizens" and like terms relate to Citizens, Inc. and its subsidiaries on a U.S. GAAP consolidated financial statement basis, unless specifically identified otherwise. We operate our subsidiaries as separate and distinct entities with respect to corporate formalities.  

Risks Relating to Our Business

A substantial majority of our sales derives from residents of foreign countries and is subject to risks associated with political instability, poor infrastructure and the application of currency control laws and foreign insurance laws. A significant loss of sales in these foreign markets could have a material adverse effect on our results of operations and financial condition.

A substantial majority of our direct premiums, approximately 69% at March 31, 2019, are from foreign countries, primarily those in Latin America and the Pacific Rim.  These sales are made through independent consultants who are located in these foreign countries. Many of these countries have a history of political instability, including regime changes, political uprisings, currency fluctuations and anti-democratic or anti-U.S. policies. The ability of people living in these countries to purchase and continue to make premium payments on our insurance policies and our ability to sell our policies in those countries through our independent consultants or otherwise may be adversely affected by political instability. Given the nature of our products, in an economic environment characterized by higher unemployment, lower personal income and reduced consumer spending, new product sales may be adversely affected. During such periods, we may also experience higher claims incidence, longer claims duration, increase in policy lapses and/or increase in surrenders, any of which could have a material adverse effect on our results of operations or financial condition. We may also be affected by poor utility infrastructure in some of these countries which can impair the ability of our current or prospective policyholders to make payments of any kind. Continued wide spread power outages or any other issues with infrastructure could affect our ability to receive insurance policy applications and premiums from Venezuela, and issue insurance policies to, policyholders in Venezuela. In addition, the imposition of U.S. sanctions against foreign countries where our policyholders reside could make it difficult for us to continue to issue new policies and receive premiums from policyholders in those countries.

Our Company’s future sales and financial results also depend upon avoiding significant regulatory restraints on receiving insurance policy applications and premiums from, and issuing insurance policies to, policyholders outside of the U.S. Currency control laws, other currency exchange restrictions or tax laws in foreign countries could materially adversely affect our revenues by imposing restrictions or additional fees, costs or taxes on asset transfers outside of a country where our policyowners reside. Difficulties in transferring funds from or converting currencies to U.S. dollars in certain countries or any increase in fees, costs or taxes associated therewith could prevent our policyowners in those countries from purchasing or paying premiums on our policies and/or make our products less attractive to such policyowners. As such, existing or future laws and regulations, and the manner in which they are interpreted or applied, may become more restrictive or otherwise adversely affect our operations.

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We also face risks associated with the application of foreign laws to our sales of insurance policies to residents in foreign countries. Generally, all foreign countries in which we offer insurance products require a license or other authority to conduct insurance business in that country. Some of these countries also require that local regulatory authorities approve the terms of any insurance product sold to residents of that country. We have never sought to qualify to do business in any foreign country or jurisdiction, except Bermuda, in which CICA Ltd. is domiciled, and have never submitted the insurance policies that we issue to residents of foreign countries for approval by any foreign or domestic insurance regulatory agency. Traditionally, we have sought to mitigate risks associated with the potential application of foreign laws to our sales of insurance policies in our foreign markets by, among other things, not locating any of our offices or assets in foreign countries or jurisdictions, selling policies only through independent consultants rather than our own employees, requiring that all applications for insurance be submitted to and accepted only in our offices in the U.S. or, following the novation of our international policies to CICA Ltd. in Bermuda effective July 1, 2018, in our offices in Bermuda, and requiring that policy premiums be paid to us only in U.S. dollars.  We rely on our independent consultants to comply with laws applicable to them in marketing our insurance products in their respective countries. There is no assurance that the precautionary measures, practices and policies mentioned above will partially or entirely mitigate the risk associated with the potential application of foreign laws to our sales of insurance policies in our foreign markets. The Company may determine that the risks associated with a particular market and its regulatory environment outweigh the benefits of conducting further business in that market.

We have undertaken a comprehensive compliance review of risks associated with the potential application of foreign laws to our sales of insurance policies in foreign countries. The application of foreign laws to our sales of insurance policies in foreign countries varies by country. There is a lack of uniform regulation and lack of clarity in certain regulations. Our compliance review has confirmed the previously disclosed risks related to foreign insurance laws associated with our current business model, at least in certain foreign countries. As a result of this evaluation, the Company announced on April 25, 2018 its decision to discontinue accepting life insurance applications from Brazilian residents or citizens. While the Company intends to continue fulfilling commitments under existing policies, it is unclear whether Brazilian regulations or regulators will allow us to continue to do so.

There are risks that a foreign government could determine under its existing laws that its residents may not purchase life insurance from us unless we become qualified to do business in that country or unless our policies purchased by its residents receive prior approval from its insurance regulators. There also is a risk that a foreign government will enact additional legislation that may render our existing insurance products either illegal or less attractive to potential customers. There is the further risk that regulators may become more aggressive in enforcing any perceived violations of their laws and seek to impose monetary fines, criminal penalties, and/or order us to cease our sales in that jurisdiction. There is no assurance that, if a foreign country were to deem our sales of policies in that country to require that we qualify to do business in that country or submit our policies for approval by that country’s regulatory authorities, we would be able to, or would conclude that it is advisable to, comply with those requirements.  Any determination by a foreign country that we or our policy sales are subject to regulation under their laws, or any actions by a foreign country to enforce such laws more aggressively, could therefore have a material adverse effect on our ability to sell policies in that country and, in turn, on our results of operations and financial condition. We are exploring alternatives to our current business model in one or more jurisdictions.

Effective July 1, 2018, the Company novated all of the international policies issued by CICA to CICA Ltd.  The novation may result in adverse consequences that are difficult to anticipate.  We could be required to allocate considerable time and resources to comply with any new or additional regulatory requirements in Bermuda, and any such requirements could impact the operations of CICA Ltd., result in increased costs for us and impact our financial condition. In addition, how existing policyholders will react to their insurance policies being held by a Bermuda domiciled company, rather than a U.S. domiciled company, is uncertain. If policyholders were to view policies of a Bermuda company as less attractive for any reason, this may result in reduced sales of new policies, fewer renewals and/or a higher level of surrenders of existing policies which may, in the aggregate, have a material adverse effect on the Company’s financial performance.

Any disruption to the marketing and sale of our policies to residents of foreign countries, resulting from the actions of foreign regulatory authorities, the withdrawal from Brazil or other markets, the implementation of new Bermuda regulatory obligations or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

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Our operating results and financial condition may be affected if the liabilities actually incurred differ, or if our estimates of those liabilities change, from the amounts we have reserved for in connection with missed tax reporting or noncompliance of some of our products with the Internal Revenue Code.

We have previously reported that a portion of the life insurance policies issued by our subsidiary insurance companies failed to qualify for the favorable U.S. federal income tax treatment afforded by Section 7702 of the Internal Revenue Code ("IRC") of 1986. Further, we have determined that the structure of our policies sold to non-U.S. citizens, which were novated to our Bermuda subsidiary effective July 1, 2018, may have inadvertently generated U.S. source income for policyholders over time. Based upon a review of the options available to address these issues, we intend to remediate domestic life and annuity policies sold to U.S. citizens to comply with the IRC. For instance, we expect to settle any past liabilities with the IRS related to the novated policies sold to non-U.S. citizens. The Company has continued to refine its estimate of the exposure and expenses related to these tax issues, as described below for the current reporting period.

We have established a best estimate liability of $10.0 million as of March 31, 2019, after tax, for probable liabilities and expenses. The range of financial estimates relative to this issue is $6.0 million to $52.5 million, after tax. This estimated range includes projected taxes, interest and penalties payable to the IRS, as well as any other costs attributed to remediation of non-compliant domestic life insurance. The amount of our liabilities and expenses depends on a number of uncertainties, including the number of prior tax years for which we may be liable to the IRS, the number of domestic life and annuity insurance policies we will be required to remediate, the methodology applicable to the calculation of tax liabilities for policies and the amount of time and resources we will require from external advisors who are assisting us with resolving these issues. Given the range of potential outcomes and the significant variables assumed in establishing our estimates, actual amounts incurred may exceed our reserve and could exceed the high end of our estimated range of liabilities and expenses. To the extent the amount reserved is insufficient to meet the actual amount of our liabilities and expenses, or if our estimates of those liabilities and expenses change in the future, our financial condition and results of operations may be materially adversely affected.

On May 17, 2017, we submitted an offer to enter into Closing Agreements with the IRS covering the CICA and CNLIC domestic life insurance businesses. The toll charges calculated and enumerated in the Closing Agreements totaled $124,000 and $4,000 for the CICA and CNLIC domestic life insurance businesses, respectively. We have not yet received any correspondence from the IRS related to our submissions.

We have initiated discussions with the IRS to address potential liabilities regarding the CICA international business and our annuity business.

CICA Ltd. is subject to extensive government regulation by the Bermuda Monetary Authority ("BMA"), which is a new regulatory regime for the Company. Failure to comply with regulation by the BMA may increase our costs of doing business, restrict the conduct of our business and negatively impact our financial position or results of operations.

For over 40 years, the Company’s life insurance subsidiaries have been regulated in the U.S. by the state insurance departments of their states of domicile. CICA Ltd. was registered in Bermuda under the Bermuda Insurance Act 1978 (the "Insurance Act") as a Class E insurer in February 2018 and is now subject to the provisions of the Insurance Act and the rules and regulations promulgated thereunder. We have no prior experience operating in a foreign jurisdiction and have limited experience with regulation by the BMA. Failure to comply with laws and regulations in Bermuda could subject us to monetary penalties imposed by the BMA, increased regulatory supervision, unanticipated costs associated with remedying such failure or other claims, harm to our reputation and interruption of our operations, which may have a material adverse impact on our financial position or results of operations.

Sustained periods of low interest rates in the long-term investment market may adversely affect our reported net investment income and the discount rates used in reserving for our insurance products, which may adversely affect our results of operations or financial condition.

Declines in interest rates and/or the continuance of the current level of low interest rates and yields on fixed income investments may cause the rates of return on our investment portfolio to decrease more than expected, leading to lower net investment income than assumed in the pricing and reserving for our insurance products. An interest, or discount, rate is used in calculating reserves for our insurance products. We set our reserve discount rate assumptions based on our current and expected future investment

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yield for assets supporting the reserves, considering current and expected future market conditions. If the discount rate assumed in our reserve calculations is higher than our future investment returns, our invested assets will not earn enough investment income to support our future claim payments. In that case, the reserves may eventually be insufficient, resulting in the need to increase our reserves and/or increase our capital contributions to our insurance subsidiaries, either of which could have a material adverse effect on our results of operations or financial condition.

We face financial, liquidity and capital market risks in our operations.

As an insurance holding company with significant investment exposure, we face material financial and capital markets risk in our operations.  Due to the sustained low interest rate environment in recent years, we experienced significant call activity on our fixed income portfolio that decreased our investment yields over the years. A large portion of our debt security investment portfolio will mature in the next seven years and could be called sooner. We were subject to significant call activity beginning in 2009 due to the declining interest rate environment, which required us to reinvest in debt securities with shorter durations that are now approaching maturity. We will need to reinvest these maturing funds in the current interest rate environment. Our profitability could be negatively impacted depending on the market rates at the time of reinvestment. This could result in a decrease in our spread between our policy liability crediting rates and our investment earned rates. This could also negatively impact our liquidity.

We face potential liquidity risks if policyholders with mature policies elect to receive lump sum distributions at greater levels than anticipated. Our whole life and endowment products provide the policyholder with alternatives once the policy matures. The policyholder can choose to take a lump sum payout or leave the money on deposit at interest with the Company. As of March 31, 2019, the Company has a significant amount of endowment products representing approximately 41.5% of total insurance in force with older contracts sold historically that will begin reaching their maturities over the next several years. It is uncertain how policyholders will react in response to these maturities. If a large number of policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities. Meeting these distributions could require the Company to sell securities at inopportune times to pay policyholder withdrawals. Alternatively, if the policyholder were to leave the money on deposit with the Company at interest, our profitability could be negatively impacted if the product guaranteed rate is higher than the current market rate we can earn on our investments.

Changes in market interest rates may significantly affect our profitability.

Some of our products, principally traditional whole life insurance with annuity riders, expose us to the risk that changes in interest rates will reduce our "spread," or the difference between the amounts we are required to pay under our contracts to policyholders and the rate of return we are able to earn on our investments intended to support obligations under the contracts.  Our spread is an integral component of our net income.

If interest rates decrease or remain at low levels, we may be forced to reinvest proceeds from investments that have matured, prepaid, been sold, or called at lower yields, reducing our investment margin.  Our fixed income bond portfolio is exposed to interest rate risk as approximately 54% of the portfolio is callable as of December 31, 2018.  Lowering our interest crediting rates can help offset decreases in investment margins on some of our products.  However, our ability to lower these rates could be limited by competition or contractually guaranteed minimum rates and may not match the timing or magnitude of changes in asset yields.

An increase in interest rates will decrease the net unrealized gain position of our investment portfolio and may subject us to disintermediation risk. Disintermediation risk is the risk that in a change from a low interest rate period to a significantly higher and increasing interest rate period, policyholders may surrender their policies or make early withdrawals to increase their returns, requiring us to liquidate investments in an unrealized loss position (i.e. the market value less the carrying value of the investments).

Our investment portfolio is subject to various risks that may result in realized investment losses. In particular, decreases in the fair value of fixed maturities may significantly reduce the value of our investments, and as a result, our financial condition may suffer.

We are subject to credit risk in our investment portfolio. Defaults by third parties in the payment or performance of their obligations under these securities could reduce our investment income and realized investment gains or result in the recognition of investment losses. The value of our investments may be materially adversely affected by increases in interest rates, downgrades in the bonds included in our portfolio and by other factors that may result in the recognition of other-than-temporary impairments. Each of

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these events may cause us to reduce the carrying value of our investment portfolio.

In particular, at March 31, 2019, fixed maturities represented $1.3 billion or 92.1% of our total investments of $1.4 billion. The fair value of fixed maturities and the related investment income fluctuates depending on general economic and market conditions. The fair value of these investments generally increases or decreases in an inverse relationship with fluctuations in interest rates, while net investment income realized by us will generally increase or decrease in line with changes in market interest rates. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations. An investment has prepayment risk when there is a risk that the timing of cash flows resulting from the repayment of principal might occur earlier than anticipated because of declining interest rates or later than anticipated because of rising interest rates. The impact of value fluctuations affects our consolidated financial statements, as all of our fixed maturities are classified as available-for-sale, with changes in fair value reflected in our stockholders' equity (accumulated other comprehensive income or loss). No similar adjustment is made for liabilities to reflect a change in interest rates. Therefore, interest rate fluctuations and economic conditions could adversely affect our stockholders' equity, total comprehensive income and/or cash flows. Although at March 31, 2019, approximately 98.2% of our fixed maturities were investment grade with 74.0% rated A or above, all of our fixed maturities are subject to credit risk. If any of the issuers of our fixed maturities suffer financial setbacks, the ratings on the fixed maturities could be downgraded (with a concurrent decrease in fair value) and, in a worst-case scenario, the issuer could default on its financial obligations. If the issuer defaults, we could have realized losses associated with the impairment of the securities.

Valuation of our investments and the determination of whether a decline in the fair value of our invested assets is other-than-temporary are based on estimates that may prove to be incorrect.

U.S. GAAP requires that when the fair value of any of our invested assets declines and the decline is deemed to be other-than-temporary, we recognize a loss in either other comprehensive income or in our statement of income based on certain criteria in the period for which the determination is made. The determination of the fair value of certain invested assets, particularly those that do not trade on a regular basis, requires an assessment of available data and the use of assumptions and estimates. Once it is determined that the fair value of an asset is below its carrying value, we must determine whether the decline in fair value is other-than-temporary, which is based on subjective factors and involves a variety of assumptions and estimates.

There are risks and uncertainties associated with determining whether declines in market value are other-than-temporary. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions and legislative actions. In the case of mortgage- and asset-backed securities, there is added uncertainty as to the performance of the underlying collateral assets. To the extent that we are incorrect in our determination of the fair value of our investment securities or our determination that a decline in their value is other-than-temporary, we may realize losses that never actually materialize or may fail to recognize losses within the appropriate reporting period.

Gross unrealized losses on available-for-sale fixed maturity securities may be realized or result in future impairments, resulting in a reduction in our net income.

Fixed maturity securities classified as available-for-sale are reported at fair value.  Unrealized gains and losses on available-for-sale securities are recognized as a component of other comprehensive income (loss) and are, therefore, excluded from our net income.  Our total gross unrealized losses on our available-for-sale securities portfolio at March 31, 2019 were $3.0 million.  The accumulated change in estimated fair value of these securities is recognized in net income when the gain or loss is realized upon sale of the security or in the event that the decline in estimated fair value is determined to be other-than-temporary and an impairment charge to earnings is taken.  Realized losses or impairments may have a material adverse effect on our net income in a particular quarterly or annual period.

Our actual claims losses may exceed our reserves for claims, and we may be required to establish additional reserves, which in turn may adversely impact our results of operations and financial condition.

We maintain reserves to cover our estimated exposure for claims relating to our issued insurance policies.  Reserves, whether calculated under U.S. GAAP or statutory accounting practices prescribed by various state insurance regulators, do not represent an exact calculation of exposure, but instead represent our best estimates, generally involving actuarial projections, of what we

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expect claims will be based on mortality assumptions that are determined by various regulatory authorities.  Many reserve assumptions are not directly quantifiable, particularly on a prospective basis.  In addition, when we acquire other domestic life insurance companies, our assessment of the adequacy of acquired policy liabilities is subject to our estimates and assumptions.  Reserve estimates are refined as experience develops, and adjustments to reserves are reflected in our statements of operations for the period in which such estimates are updated.  Because establishing reserves is an inherently uncertain process involving estimates of future losses, future developments may require us to increase policy benefit reserves, which may have a material adverse effect on our results of operations and financial condition in the periods in which such increases occur.

Unanticipated increases in early policyholder withdrawals or surrenders or elections by policyholders to deposit distributions at maturity in guaranteed interest contracts could negatively impact liquidity.

A primary liquidity concern is the risk of unanticipated or extraordinary early policyholder withdrawals or surrenders. Our insurance policies include provisions, such as surrender charges, that help limit and discourage early withdrawals, and we track and manage liabilities and attempt to align our investment portfolio to maintain sufficient liquidity to support anticipated withdrawal demands. However, early withdrawal and surrender levels may differ from anticipated levels for a variety of reasons, including changes in economic conditions, changes in policyholder behavior or financial needs, changes in relationships with our independent consultants, changes in our claims-paying ability, or increases in surrenders among policies that have been inforce for more than fifteen years and are no longer subject to surrender charges. In addition, our whole life and endowment products provide the policyholder with alternatives once the policy matures.  The policyholder can choose to take a lump sum payout or leave the money on deposit at interest with the Company.  The Company has a significant amount of endowment products, with older contracts sold historically that will begin reaching their maturities over the next several years and policyholder election behavior is not known. If a large number of policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities. Any of these occurrences could adversely affect our liquidity, profitability and financial condition.

While we own a significant amount of liquid assets, a certain portion of investment assets are relatively illiquid. If we experience unanticipated early withdrawal or surrender activity, we could exhaust all other sources of liquidity and be forced to obtain additional financing or liquidate assets, perhaps on unfavorable terms. The availability of additional financing will depend on a variety of factors, such as market conditions, the availability of credit in general or more specifically in the insurance industry, the strength or weakness of the capital markets, the volume of trading activities, our credit capacity, and the perception of our long- or short-term financial prospects if we incur large realized or unrealized investment losses or if the level of business activity declines due to a market downturn. If we are forced to sell assets on unfavorable terms, it could have an adverse effect on our liquidity, results of operations and financial condition.

Catastrophes may adversely impact liabilities for policyholder claims and reinsurance availability.

Our insurance operations are exposed to the risk of catastrophic events. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes, earthquakes, tsunamis and man-made catastrophes may produce significant damage or loss of life in larger areas, especially those that are heavily populated. Claims resulting from catastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year and could materially reduce our profitability or harm our financial condition. In addition, catastrophic events could harm the financial condition of issuers of obligations we hold in our investment portfolio, resulting in impairments to these obligations, and the financial condition of our reinsurers, thereby increasing the probability of default on reinsurance recoveries. Large-scale catastrophes may also reduce the overall level of economic activity in affected countries, which could hurt our business and the value of our investments or our ability to sell new policies.

Our life insurance operations are exposed to the risk of catastrophic mortality, such as a pandemic or other event that causes a large number of deaths, especially if concentrated in our top foreign markets. A significant pandemic could have a major impact on the global economy or the economies of particular countries or regions, including travel, trade, tourism, the health system, food supply, consumption, overall economic output and, eventually, on the financial markets. In addition, a pandemic that affected our employees, our policyholders, our independent consultants or other companies with which we do business could disrupt our business operations. The effectiveness of external parties, including governmental and non-governmental organizations, in combating the spread and severity of such a pandemic could have a material impact on the losses experienced by us. These events

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could cause a material adverse effect on our results of operations in any period and, depending on their severity, could also materially and adversely affect our financial condition.

We may be required to accelerate the amortization of deferred acquisition costs and the costs of customer relationships acquired, which would increase our expenses and adversely affect our results of operations and financial condition.

At March 31, 2019, we had $154.1 million of deferred policy acquisition costs, or DAC.  DAC represents costs that vary with and are directly related to the successful sale and issuance of our insurance policies and are deferred and amortized over the estimated life of the related insurance policies.  These costs include commissions in excess of ultimate renewal commissions, solicitation and printing costs, sales material costs and some support costs, such as underwriting and contract and policy issuance expenses.  Under U.S. GAAP for our type of insurance products, DAC is amortized over the premium-paying period of the policies.

In addition, when we acquire a block of insurance policies, we assign a portion of the purchase price to the right to receive future net cash flows from existing insurance and investment contracts and policies.  This intangible asset, called the cost of customer relationships acquired, or CCRA, represents the actuarially estimated present value of future cash flows from the acquired policies.  At March 31, 2019, we had $14.7 million of CCRA.  We amortize the value of this intangible asset in a manner similar to the amortization of DAC.

The amortization of DAC and CCRA is subject to acceleration and generally depends upon anticipated profits from investments, surrender and other policy charges, mortality, morbidity, persistency and maintenance expense margins.  For example, if our insurance policies lapse and surrender rates were to exceed the assumptions upon which we priced our insurance policies, or if actual persistency proves to be less than our persistency assumptions, especially in the early years of a policy, we might be required to accelerate the amortization of expenses we deferred in connection with the acquisition of the policy.  We regularly review the quality of our DAC and CCRA to determine if they are recoverable from future income.  If these costs are not recoverable, the amount that is not recoverable is charged to expenses in the financial period in which we make this determination.

Unfavorable experience with regard to expected expenses, investment returns, surrender and other policy charges, mortality, morbidity, lapses or persistency may cause us to increase the amortization of DAC or CCRA, or both, or to record a current period expense to increase benefit reserves, any of which could have a material adverse effect on our results of operations and financial condition.

We may be required to recognize an impairment on the value of our goodwill, which would increase our expenses and materially adversely affect our results of operations and financial condition.

Goodwill represents the excess of the amount paid by us to acquire various life insurance companies over the fair value of their net assets at the date of the acquisition.  Under U.S. GAAP, we test the carrying value of goodwill for impairment at least annually at the "reporting unit" level, which is either an operating segment or a business that is one level below the operating segment.  Goodwill is impaired if its carrying value exceeds its implied fair value.  This may occur for various reasons, including changes in actual or expected earnings or cash flows of a reporting unit, generation of earnings by a reporting unit at a lower rate than similar businesses or declines in market prices for publicly traded businesses similar to our reporting units.  If any portion of our goodwill becomes impaired, we would be required to recognize the amount of the impairment as a current-period expense, which could have a material adverse effect on our results of operations and financial condition.  Goodwill in our consolidated financial statements related to our Life Insurance segment was $12.6 million as of March 31, 2019.

Management’s determination of the fair value of each reporting unit incorporates multiple inputs including qualitative and quantitative factors such as discounted cash flow calculations based on assumptions that market participants would make in valuing the reporting unit. Other assumptions can include levels of economic capital, future business growth, and earnings projections and trends.

Our conversion to a new actuarial valuation system is not yet complete and contains known uncertainties that could result in identification of additional errors in our financial reporting.

The Company is in the process of converting its actuarial valuation from a third-party service provider to an actuarial valuation modeling software system purchased from a vendor. In connection with our ongoing actuarial valuation conversion, certain legacy

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system immaterial errors were discovered in 2018, 2017 and 2016. As we complete this validation and conversion, we could identify additional differences that will be evaluated for financial reporting purposes. The conversion to the new system has been completed for some of our individual company valuations but is on-going for others and is expected to be completed in the next one to two years.

We are a defendant in lawsuits, which may adversely affect our financial condition and detract from the time our management is able to devote to our business, and we are subject to risks related to litigation and regulatory matters.

From time to time we are, and have been, subject to a variety of legal and regulatory actions and investigations relating to our business operations, including, but not limited to:

• disputes over insurance coverage or claims adjudication;

• regulatory compliance with state laws, including insurance and securities regulations;

• regulatory compliance with U.S. federal securities laws, tax, anti-money laundering, bank secrecy, anti-bribery, anti-corruption and foreign asset control laws, among others;

• disputes with our independent marketing firms, independent consultants and employee-agents over compensation, termination of contracts, noncompliance with applicable laws and regulations and related claims;

• disputes regarding our tax liabilities;

• disputes relating to reinsurance and coinsurance agreements; and

• disputes relating to businesses acquired and operated by us.

In the absence of countervailing considerations, we would expect to defend any such claims vigorously.  However, in doing so, we could incur significant defense costs, including attorneys' fees, other direct litigation costs and the expenditure of substantial amounts of management time that otherwise would be devoted to our business.  Further, if we suffer an adverse judgment as a result of any claim, it could have a material adverse effect on our business, results of operations and financial condition.

Reinsurers with which we do business could increase their premium rates and may not honor their obligations, leaving us liable for the reinsured coverage.

We reinsure certain risks underwritten by our various insurance subsidiaries.  Market conditions beyond our control determine the availability and cost of the reinsurance protection we purchase.  The high cost of reinsurance or lack of affordable coverage could adversely affect our results of operations and financial condition.

Our reinsurance facilities are generally subject to annual renewal.  We may not be able to maintain our current reinsurance facilities and, even if highly desirable or necessary, we may not be able to obtain replacement reinsurance facilities in adequate amounts or at rates economically attractive to us.  If we are unable to renew our expiring facilities or to obtain new reinsurance facilities, either our net exposures would increase or, if we are unwilling or unable to bear an increase in net exposures, we may have to reduce the level of our underwriting commitments.  In addition, our reinsurance facilities may be canceled for new business, pursuant to their terms, upon the occurrence of certain specified events, including a change of control of our Company (generally defined as the acquisition of 10% or more of our voting equity securities) or the failure of our insurance company subsidiaries to maintain the minimum required levels of statutory surplus.  Any of these potential developments could materially adversely affect our revenues, results of operations and financial condition.

In 2018, we reinsured $490.3 million of the face amount of our life insurance policies.  Amounts reinsured in 2018 represented 10.1% of the face amount of direct life insurance in force in that year.  Although the cost of reinsurance is, in some cases, reflected in premium rates, under certain reinsurance agreements, the reinsurer may increase the rate it charges us for reinsurance.  If our cost of reinsurance were to increase, we might not be able to recover these increased costs, and our results of operations and financial condition could be materially adversely affected.  See Note 5. Reinsurance in the notes to our Company's consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018.

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Our international markets face significant competition. If we are unable to compete effectively in our markets, our business, results of operations and profitability may be adversely affected.

Our international marketing plan focuses on making available U.S. dollar-denominated life insurance products to individuals residing in foreign countries.  New competition could increase the supply of available insurance, which could adversely affect our ability to price our products at attractive profitable rates and thereby adversely affect our revenues, results of operations and financial condition.  Existing barriers to entry in the foreign markets we serve may not be sufficient to impede potential competitors from entering such markets.  In connection with our business with foreign nationals, we experience competition primarily from the following sources, many of which have substantially greater financial, marketing and other resources than we have:

• Foreign operated companies with U.S. dollar-denominated policies.  We face direct competition from companies that operate in the same manner as we operate in our international markets, including from a company recently formed by some of our former employees and independent consultants.

• Foreign operated companies with locally operated subsidiaries that offer both local jurisdiction regulated products in local currency and off-shore U.S. dollar-denominated policies.  This arrangement creates competition in that the U.S. dollar-denominated policies are offered in conjunction with high-need local insurance policies such as health insurance.

• Local currency policies. These policies provide the benefit of assets located in the country of foreign residents, but entail risks of uncertainty due to local currency fluctuations, as well as the perceived instability and weakness of local currencies.

• Locally operated companies with local currency policies.  We compete with companies formed and operated in the country in which our foreign insureds reside.  Generally, these companies are subject to risks of currency fluctuations, and they primarily use mortality tables based on experience of the local population as a whole.  These mortality tables are typically based on significantly shorter life spans than those we use.  As a result, the cost of insurance from these companies tends to be higher than ours. Although these companies typically market their policies to a broader section of the population than do our independent marketing firms and independent consultants, there can be no assurance that these companies will not endeavor to place a greater emphasis on our target market and compete more directly with us.

In addition, from time to time, companies enter and exit the markets in which we operate, thereby increasing competition at times when there are new entrants.  We may lose business to competitors offering competitive products at lower prices, or for other reasons.

There can be no assurance that we will be able to compete effectively in any of our markets.  If we do not, our business, results of operations and financial condition will be materially adversely affected.

Sales of our insurance products could decline if we are unable to (i) establish and maintain commercial relationships with independent marketing firms and independent consultants, (ii) attract and retain employee agents or (iii) develop and maintain our distribution sources.

We distribute our insurance products through several distribution channels, including independent marketing firms, independent consultants and our employee agents.  These relationships are significant for both our revenues and profits.  In our Life Insurance segment, we depend almost exclusively on the services of independent marketing firms and independent consultants.  In our Home Service Insurance segment, we depend on employee agents whose role in our distribution process is integral to developing and maintaining relationships with policyholders.  Significant competition exists among insurers in attracting and maintaining marketers of demonstrated ability.  Some of our competitors may offer better compensation packages for marketing firms, independent consultants and agents and broader arrays of products and have a greater diversity of distribution resources, better brand recognition, more competitive pricing, lower cost structures and greater financial strength or claims paying ratings than we do.  We compete with other insurers for marketing firms, independent consultants and employee agents primarily on the basis of our compensation, products and support services.  Any reduction in our ability to attract and retain effective sales representatives could materially adversely affect our revenues, results of operations and financial condition. Modifications in our international business model including, without limitation, our novation to our Bermuda-based entity, CICA Ltd., and our withdrawal from certain markets, may have an adverse impact on our ability to attract and retain effective sales representatives.

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There may be adverse tax, legal or financial consequences if our sales representatives are determined not to be independent contractors.

Our international sales representatives are independent contractors who operate their own businesses. Although we believe that we have properly classified our representatives as independent contractors, there is nevertheless a risk that the IRS, a foreign agency, a court or other authority will take the different view that our sales representatives should be treated like employees. Furthermore, the tests governing the determination of whether an individual is considered to be an independent contractor or an employee are typically fact-sensitive and vary from jurisdiction to jurisdiction. Laws and regulations that govern the status and misclassification of independent sales representatives are subject to change or interpretation.

If there is a change in the manner in which our independent contractors are classified or an adverse determination with respect to some or all of our independent contractors by a court or governmental agency, we could incur significant costs in complying with such laws and regulations, including in respect of tax withholding, social security payments, government and private pension plan contributions and recordkeeping, or we may be required to modify our business model, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, there is the risk that we may be subject to significant monetary liabilities arising from fines or judgments as a result of any such actual or alleged non-compliance with applicable federal, state, local or foreign laws.

We and our domestic insurance subsidiaries are subject to extensive governmental regulation in the U.S., which is subject to change and may increase our costs of doing business, restrict the conduct of our business, increase capital requirements for our insurance subsidiaries and negatively impact our results of operations, liquidity and financial condition.

We and our domestic subsidiaries are subject to extensive regulation and supervision in U.S. jurisdictions where we do business, including state insurance regulations and U.S. federal securities, tax, financial services, privacy, anti-money laundering, bank secrecy, anti-corruption and foreign asset control laws.  Insurance company regulation is generally designed to protect the interests of policyholders, with substantially lesser protections to shareholders of the regulated insurance companies.  To that end, all the U.S. states in which we do business have insurance regulatory agencies with broad legal powers with respect to licensing companies to transact business; mandating capital and surplus requirements; regulating trade and claims practices; approving policy forms; restricting companies' ability to enter and exit markets; and restricting or prohibiting the payment of dividends by our subsidiaries to us.

The capacity for an insurance company's growth in premiums is partially a function of its required statutory surplus.  Maintaining appropriate levels of statutory surplus, as measured by statutory accounting practices prescribed or permitted by a company's state of domicile, is considered important by all U.S. state insurance regulatory authorities.  Failure to maintain required levels of statutory surplus could result in increased regulatory scrutiny and enforcement action by regulatory authorities.

Most U.S. insurance regulatory authorities have broad discretion to grant, renew, suspend and revoke licenses and approvals, and could preclude or temporarily suspend us from carrying on some or all of our activities, including acquisitions of other insurance companies, require us to add capital to our insurance company subsidiaries, or fine us.  If we are unable to maintain all required licenses and approvals, or if our insurance business is determined not to comply fully with the wide variety of applicable laws and regulations and their interpretations, including the USA Patriot Act, our revenues, results of operations and financial condition could be materially adversely affected.

Our failure to maintain effective information systems could adversely affect our business.

We must maintain and enhance our existing information systems and develop and integrate new information systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and changing customer preferences in a cost effective manner.  If we do not maintain adequate systems, we could experience adverse consequences, including products acquired through acquisition, inadequate information on which to base pricing, underwriting and reserve decisions, regulatory problems, failure to meet prompt payment obligations, increases in administrative expenses and loss of customers. We must also effectively consolidate our information systems to eliminate redundant or obsolete applications. Our failure to maintain effective and efficient information systems, or our failure to consolidate our existing systems, could have a material adverse effect on our results of operations and financial condition.

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Some of our information technology systems and software are mainframe-based, legacy-type systems that require an ongoing commitment of resources to maintain current standards.  Our systems utilize proprietary code requiring highly skilled personnel.  Due to the unique nature of our proprietary operating environment, we could have difficulty finding personnel with the skills required to provide ongoing system maintenance and development as we seek to keep pace with changes in our products and business models, information processing technology, evolving industry and regulatory standards and policyholder needs.  

Our success depends on our ability to successfully implement new or upgraded systems and technology. For example, during the third quarter of 2018, we completed the implementation of a new Oracle Enterprise Resource Planning application, which has replaced several of our back office legacy systems, such as the general ledger, accounts payable, cash management, and fixed asset systems. We also implemented a new actuarial valuation and modeling system, GGY AXIS, related to CICA and CICA Ltd. actuarial valuations. There are inherent risks associated with the modifications and transition to our new general ledger system and actuarial valuation system, including the potential for inaccurately capturing data as well as system disruptions. Either of these problems, if not anticipated and appropriately mitigated, could have a negative impact on our ability to provide timely and accurate financial reporting and have a material adverse effect on our results of operations and financial condition.

Failures of disclosure controls and procedures and internal control over financial reporting could materially and adversely affect our business, financial condition and results of operations, impair our ability to timely file reports with the SEC and subject us to litigation and/or regulatory scrutiny and penalties. 

We maintain disclosure controls and procedures designed to ensure that we timely report information as specified in SEC rules and regulations. We also maintain a system of internal control over financial reporting. However, these controls may not achieve, and in some cases have not achieved, their intended objectives. Control processes that involve human diligence and oversight, such as our disclosure controls and procedures and internal control over financial reporting, are subject to human error. Controls that rely on models may be subject to inadequate design or inaccurate assumptions or estimates.  Controls also can be circumvented by improper management override of such controls. Because of such limitations, there are risks that material misstatements due to error or fraud may not be prevented or detected, and that information may not be reported on a timely basis. The failure of our controls to be effective could have a material adverse effect on our business, financial condition, results of operations and the market for our common stock, and could subject us to litigation, regulatory scrutiny and/or penalties.

As disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, we have identified a deficiency in our internal control over financial reporting that constitutes a material weakness and for which remediation is still in process as of March 31, 2019. If we fail to design effective controls, remediate control deficiencies or otherwise maintain effective internal control over financial reporting in the future, such failures could result in a material misstatement of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and which could cause investors to lose confidence in our financial statements, have a negative effect on the trading price of our common stock, limit our ability to obtain financing if needed or increase the cost of any financing we may obtain. In addition, these failures may negatively impact our business, financial condition and results of operations, impair our ability to timely file our periodic reports with the SEC, subject us to litigation and regulatory scrutiny and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures.

A cyber attack or other security breach could disrupt our operations, result in the unauthorized disclosure or loss of confidential data, damage our reputation or relationships, and expose us to significant financial and legal liability, which may adversely affect our business, results of operations, or financial condition.

We store confidential information about our business and our policyholders, independent marketing firms, independent consultants and employee-agents and others on our information technology systems, including proprietary and personally identifiable information. As part of our normal business operations, we use this information and engage third-party providers, including outsourcing, cloud computing, and other business partners, that store, access, process, and transmit such information on our behalf. We devote significant resources and employ security measures to help protect our information technology systems and confidential information, and we have programs in place to detect, contain, and respond to information security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we and our third-party providers may be unable to anticipate these techniques or implement adequate preventative measures. In addition, hardware, software, or applications we develop or procure from third parties or through open source solutions may contain defects in design or manufacture or other problems that could unexpectedly

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compromise our information security. Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, or other cyber attacks, computer viruses, malicious codes, and similar means of unauthorized and destructive tampering.

We and our third-party providers may experience information security incidents from time to time. There is no assurance that our security systems and measures will be able to prevent, mitigate, or remediate future incidents. A successful penetration or circumvention of the security of our information technology systems, or those of third parties with whom we do business, could cause serious negative consequences for us, including significant disruption of our operations, unauthorized disclosure or loss of confidential information, harm to our brand or reputation, loss of customers and revenues, violations of privacy and other laws, and exposure to litigation, monetary damages, regulatory enforcement proceedings, fines, and potentially criminal proceedings and penalties. If we are unaware of the incident for some time after it occurs, our exposure could increase. In addition, the costs to address or remediate systems disruptions or security threats or vulnerabilities, whether before or after an incident, could be significant. As we continue to build our digital capabilities and focus on enhancing the customer experience, the amount of information that we retain and share with third parties is likely to grow, increasing the cost to prevent data security breaches and the cost and potential consequences of such breaches. An information technology systems failure could also interfere with our ability to comply with financial reporting and other regulatory requirements, exposing us to potential disciplinary action by regulators.  

The failure of our business recovery and incident management processes to resume our business operations in the event of a catastrophe, cyber attack, or other event could adversely affect our profitability, results of operations, or financial condition.

In the event of a disaster such as a catastrophe, an epidemic, a cyber attack, cyber security breach or other information technology systems failure, a terrorist attack, or war, unanticipated problems with our disaster recovery systems could have a material adverse impact on our ability to conduct business and on our results of operations and financial condition, particularly if those problems affect our information technology systems and destroy valuable data or result in a significant failure of our internal control environment. In addition, in the event that a significant number of our employees were unavailable in the event of a disaster, our ability to effectively conduct business could be severely compromised.

The failure of our information technology and/or disaster recovery systems for any reason could cause significant interruptions or malfunctions in our or our customers’ operations and result in the loss, theft, or failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. Such a failure could harm our reputation, subject us to regulatory sanctions, legal claims, and increased expenses, and lead to a loss of customers and revenues.

We depend on the ability of our insurance subsidiaries to make payments to us in sufficient amounts for us to conduct our operations. Our insurance subsidiaries are restricted by applicable laws and regulations in the amounts of payments they may make to us and their ability to transfer funds to us may be impaired by adverse financial results or a change in capital requirements. Accordingly, internal sources of capital and liquidity may not always be sufficient. If we need to seek external capital, adverse market conditions may affect our access to capital or our cost of capital.

As a holding company, our principal asset is the stock of our subsidiaries.  We rely primarily on statutorily permissible payments from our insurance company subsidiaries, principally through service agreements we have with our subsidiaries, to meet our working capital and other corporate expenses.  The ability of our insurance company subsidiaries to make payments to us is subject to regulation by the states and jurisdictions in which they are domiciled, and these payments depend primarily on approved service agreements between us and these subsidiaries and, to a lesser extent, the statutory surplus (which is the excess of assets over liabilities as determined under statutory accounting practices prescribed by an insurance company's state of domicile), future statutory earnings (which are earnings as determined in accordance with statutory accounting practices) and regulatory restrictions.

Except to the extent that we are a creditor with recognized claims against our subsidiaries, claims of our subsidiaries' creditors, including policyholders, have priority with respect to the assets and earnings of the subsidiaries over the claims of our creditors and shareholders.  If any of our subsidiaries becomes insolvent, liquidates or otherwise reorganizes, our creditors and shareholders will have no right to proceed in their own right against the assets of that subsidiary or to cause the liquidation, bankruptcy or winding-up of the subsidiary under applicable liquidation, bankruptcy or winding-up laws.

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Additionally, any change in demand for our insurance subsidiaries’ products or an increase in the incidence of new claims or the duration of existing claims could negatively impact their cash flows from operations. Deterioration in the credit market, which could delay our and our insurance subsidiaries’ ability to sell positions in certain of fixed maturity securities in a timely manner, could also negatively impact our and our insurance subsidiaries’ cash flows. Regulatory changes such as those discussed herein in this Item 1A may impose higher capital or reserve requirements on our insurance subsidiaries and/or implement other requirements which could unfavorably affect our liquidity. Without sufficient liquidity, our ability to maintain and grow our operations would be limited. If our internal sources of liquidity prove to be insufficient, we may be unable to successfully obtain additional financing and capital on favorable terms, or at all, which may adversely affect us.

If our financial results are unfavorable, we may need to increase our capital in order to satisfy regulatory requirements. Maintaining appropriate levels of statutory surplus is considered important not only by us but by insurance regulatory authorities in the U.S. and Bermuda. Failure to maintain certain levels of statutory surplus could result in increased regulatory scrutiny or action by regulatory authorities. Need for additional capital may limit a subsidiary's ability to distribute funds to our holding companies.

Obtaining financing for even a small amount of capital could be challenging in unfavorable market conditions and during periods of economic uncertainty. The markets may exert downward pressure on availability of liquidity and credit capacity for certain issuers. The availability of financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to the financial services industry, and the possibility that customers or lenders could develop a negative perception of our financial prospects. Similarly, our access to funds may be impaired if regulatory authorities take negative actions against us. Raising capital in unfavorable market conditions could increase our interest expense or negatively impact our shareholders through increased dilution of their common stock in the Company.

Unexpected losses in future reporting periods may require us to record a valuation allowance against our deferred tax assets.

We evaluate our deferred tax asset ("DTA") quarterly for recoverability based on available evidence.  This process involves management's judgment about assumptions, which are subject to change from period to period due to tax rate changes or variances between our projected operating performance and our actual results.  Ultimately, future adjustments to the DTA valuation allowance, if any, will be determined based upon changes in the expected realization of the net deferred tax assets.  The realization of the deferred tax assets depends on the existence of sufficient taxable income in either the carry back or carry forward periods under applicable tax law.  Due to significant estimates utilized in establishing the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we may be required to record a valuation allowance in future reporting periods.  Such an adjustment could have a material adverse effect on our results of operation, financial condition and capital position.

We face a greater risk of money laundering activity associated with sales derived from residents of certain foreign countries.

Some of our top international markets are in countries identified by the U.S. Department of State as jurisdictions of high risk for money laundering. As required by Bank Secrecy Act ("BSA") regulations applicable to insurance companies, we have developed and implemented an anti-money laundering program that includes policies and procedures for complying with our applicable BSA program, auditing, reporting and recordkeeping requirements and for deterring, detecting and reporting potential money laundering, fraud and other criminal activity ("BSA Program"). We have an enhanced BSA Program with additional controls, such as watch-list screening software beyond sanctions screening required by the Office of Foreign Assets Control ("OFAC"), enhanced payment due diligence and transaction controls. However, there can be no assurance that these enhanced controls will entirely mitigate money laundering risk associated with these jurisdictions.

Events that damage our reputation may adversely affect our business, results of operations, or financial condition.

There are many events which may harm our reputation, including, but not limited to, those discussed in this Item 1A regarding regulatory investigations, legal proceedings, cyber or other information security incidents and disputes with our independent consultants.

In addition, as an insurance company, we are paid to accept certain risks. Those who conduct our business, including executive officers and members of management, and to some extent, independent consultants, do so in part by making decisions that involve exposing us to risk. These include decisions such as maintaining effective underwriting and pricing discipline, maintaining effective

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claim management and customer service performance, managing our investment portfolio, delivering effective technology solutions, complying with established sales practices, executing our capital management strategy, exiting a line of business and/or pursuing strategic growth initiatives, and other decisions. Although we employ controls and procedures designed to monitor business decisions and prevent us from taking excessive risks or unintentionally failing to comply with internal policies and practices such that errors occur, there can be no assurance that these controls and procedures will be effective. If our employees and independent consultants take excessive risks and/or fail to comply with internal policies and practices, the impact of those events may damage our market position and reputation.

Depending on the severity of the damage to our reputation, we may be unable to effectively compete for new products or retain our existing business, which could adversely affect our results of operations or financial condition. Damage to our reputation may also hinder our ability to raise new capital and/or increase our cost of capital.

Risks Relating to Our Capital Stock

If our foreign policyholders reduced or ceased participation in our Citizens, Inc. Stock Investment Plan (the "CISIP") or if a securities regulatory authority were to deem the CISIP's operation contrary to securities laws, the volume of Class A common stock purchased on the open market through the CISIP, and the price of our Class A common stock, could fall.

At December 31, 2018, more than 95% of the shares of our Class A common stock purchased under the CISIP in 2018 were purchased by foreign holders of life insurance policies (or related brokers), with the remaining 5% of the shares of Class A common stock purchased by participants residing in the U.S. The CISIP is registered with the SEC pursuant to a registration statement under the Securities Act of 1933, but is not registered under the laws of any foreign jurisdiction.  If a foreign securities regulatory authority were to determine the offer and sale of our Class A common stock under the CISIP were contrary to applicable laws and regulations of its jurisdiction, such authority may issue or assert a fine, penalty or cease and desist order against us in that foreign jurisdiction. There is a risk our Class A common stock price could be negatively impacted by a decrease in participation in the CISIP.  If fewer policyholders elect to participate in the Plan, or our international premium collections were to decrease as a result of regulatory, economic, or marketing impediments, the trading volume of our Class A common stock may decline from its present levels, the demand for our Class A common stock could be negatively impacted and the price of our Class A common stock could fall.

Due to required regulatory approval for acquisition of control of a regulated U.S. domestic insurance company, control of our Company, through the ownership of our Class B common stock, has not yet transferred from our founder's trust to a 501(c)(3) charitable foundation established by our founder, and we cannot determine whether or when any change in our management, operations, or operating strategies will occur.

Harold E. Riley, our founder, was the beneficial owner of 100% of our Class B common stock, which was held in the name of the Harold E. Riley Trust ("Trust"), of which he had served as Trustee until his death in September 2017.  Our Class A and Class B common stock are identical in all respects, except the Class B common stock elects a simple majority of the Board and receives one-half of any cash dividends paid, on a per share basis, to the Class A common stock.  The Class A common stock elects the remainder of the Board.  The Trust documents provided that upon Mr. Riley's death, the Class B common stock will transfer from the Trust to the Harold E. Riley Foundation, a charitable organization established under 501(c)(3) of the Internal Revenue Code (the "Foundation"). 

To date, the estate process related to the Class B common stock is not complete and the required state insurance regulatory approvals for change of control to occur have not been received. Therefore, the Trust, of which Mr. Riley's estate is the trustee, currently remains the holder of record of the Class B common stock. The Foundation and the Estate of Harold E. Riley are proceeding independent of the Company to obtain regulatory approval from the Colorado Division of Insurance, the Texas Department of Insurance, the Louisiana Department of Insurance and the Mississippi Department of Insurance through the requisite Form A approval process. The Company does not know if or when regulatory approvals of the transfer ultimately will be granted. If such approvals are obtained from the states' department of insurances listed above, the Company will record the transfer of the controlling Class B common stock from the Trust to the Foundation in the Company's shareholder records.

The Foundation is organized as a public support charity for the benefit of its charitable beneficiaries, Baylor University and Southwestern Baptist Theological Seminary. The Foundation is governed by a board of trustees appointed by Harold Riley prior

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to his death, Baylor University and Southwestern Baptist Theological Seminary. It is unclear what, if any, change may occur to our Board, management, or corporate operating strategies as a result of ownership of our Class B common stock by the Foundation.

If and when the Foundation becomes the record holder of the Class B common stock, the first of two prongs of certain "change in control" provisions in the employment agreement of our President and Chief Executive Officer, Geoffrey Kolander, dated January 23, 2019, will be triggered. Under Mr. Kolander's new employment agreement effective January 1, 2019, a "change in control" includes, among other things (1) the regulatory approval of the transfer of the Class B common stock from the Trust to any individual, entity or group, other than regulatory approval of a transaction wherein the Company is the first to repurchase the Class B common stock directly from the Trust or the Foundation and (2) the exercise of a power of attorney granted by Harold E. Riley over the Company's Class B common stock by the Trust or the Foundation. If employment is terminated by Mr. Kolander or by the Company without cause, in each case, within eighteen (18) months of a change in control, Mr. Kolander would be entitled to receive certain cash payments and benefits.

The price of our Class A common stock may be volatile and may be affected by market conditions beyond our control.

The price of our Class A common stock has historically fluctuated and is likely to fluctuate in the future and could decline materially because of the volatility of the stock market in general, decreased participation in the CISIP referred to above or a variety of other factors, many of which are beyond our control, including: quarterly or annual variations in actual or anticipated results of our operations; interest rate fluctuations; changes in financial estimates by securities analysts; competition and other factors affecting the life insurance business generally; and conditions in the U.S. and world economies.

Our international markets, and the specific manner in which we conduct our business in those jurisdictions, may be subject to negative publicity in social media or other channels, which may negatively impact the market price of our Class A common stock.

We interface with and distribute our products to residents of foreign countries that may be subject to the risks disclosed in our Item 1A. Risk Factor under the heading, "A substantial majority of our sales derives from residents of foreign countries and is subject to risks associated with widespread political instability, currency control laws and foreign insurance laws. A significant loss of sales in these foreign markets could have a material adverse effect on our results of operations and financial condition". Venezuela is one such example. Accordingly, from time to time, bloggers or other social media outlets relevant to investors may focus attention on our exposure to these countries and the negative circumstances surrounding their governments, thereby subjecting us to periodic negative publicity.  Negative publicity on investor blogs or through other media channels could impact trading in our stock especially due to aggressive and coordinated efforts between anonymous bloggers and short sellers which may ultimately cause the market price of our Class A common stock to fall.

Our articles of incorporation and bylaws, as well as applicable U.S. state insurance laws, may discourage takeovers and business combinations that our shareholders might consider to be in their best interests.

Our articles of incorporation and bylaws, as well as various state insurance laws, may delay, deter, render more difficult or prevent a takeover attempt our shareholders might consider in their best interests.  As a result, our shareholders will be prevented from receiving the benefit from any premium to the market price of our Class A common stock that may be offered by a bidder in a takeover context.  Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our Class A common stock if they are viewed as discouraging takeover attempts in the future.

The following provisions in our articles of incorporation and bylaws make it difficult for our Class A shareholders to replace or remove our directors and have other anti-takeover effects that may delay, deter or prevent a takeover attempt:

• holders of shares of our Class B common stock elect a simple majority of our Board, and all of these shares are held by the Trust until such time that the Foundation receives regulatory approval for acquisition of the Class B common stock and becomes holder of record; and

• our Board may issue one or more series of preferred stock without the approval of our shareholders.

U.S. state insurance laws generally require prior approval of a change in control of an insurance company.  Generally, such laws provide that control over an insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power

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to vote, or holds proxies representing 10% or more of the voting securities of the insurer.  In considering an application to acquire control of an insurer, an insurance commissioner generally will consider such factors as the experience, competence and financial strength of the proposed acquirer, the integrity of the proposed acquirer's board of directors and executive officers, the proposed acquirer's plans for the management and operation of the insurer, and any anti-competitive results that may arise from the acquisition.  In addition, a person seeking to acquire control of an insurance company is required in some states to make filings prior to completing an acquisition if the acquirer and the target insurance company and their affiliates have sufficiently large market shares in particular lines of insurance in those states.  These state insurance requirements may delay, deter or prevent our ability to complete an acquisition.

We have never paid any cash dividends on our Class A common stock and do not anticipate doing so in the foreseeable future.

We have never paid cash dividends on our Class A common stock, as it is our policy to retain earnings for use in the operation and expansion of our business.  We do not expect to pay cash dividends on our Class A common stock for the foreseeable future.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

Exhibit Number	The following exhibits are filed herewith:
3.1	Restated and Amended Articles of Incorporation dated March 4, 2004 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 15, 2004)
3.2	Third Amended and Restated Bylaws dated November 2, 2017 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on November 8, 2017)
10.1†	Employment Agreement, dated January 23, 2019, by and between Citizens, Inc. and Geoffrey M. Kolander (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on January 25, 2019)
10.2†	Termination Agreement, dated as of January 24, 2019, by and between Citizens, Inc. and Kay E. Osbourn (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on January 25, 2019)
11	Statement re:  Computation of per share earnings (see financial statements)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act*
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase*
	__________________

* Filed herewith.

† Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CITIZENS, INC.
		By:	/s/ Geoffrey M. Kolander
			Geoffrey M. Kolander
			President and Chief Executive Officer
		By:	/s/ Jeffery P. Conklin
			Jeffery P. Conklin
			Vice President, Interim Chief Financial Officer, Interim
			Chief Investment Officer, Chief Accounting Officer and
			Treasurer
Date:	May 10, 2019

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