Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Consolidation, Policy [Policy Text Block]

BASIS OF PRESENTATION AND CONSOLIDATION

The accompanying consolidated financial statements of Citizens, Inc. and its wholly-owned subsidiaries have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP").

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 transactions have been eliminated.  Citizens and its wholly-owned subsidiaries are collectively referred to as "the Company," "we," or "our."

Our Life Insurance segment operates through CICA Ltd., CICA and CNLIC. CICA Ltd. issues U.S. Dollar-denominated endowment contracts internationally, which are principally accumulation contracts that incorporate an element of life insurance protection and ordinary whole life insurance in U.S. Dollar-denominated amounts sold to foreign residents.  These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional increasing or decreasing coverage and annuity benefits to enhance accumulations. Our domestic life insurance business, which operates through CICA and CNLIC, primarily focused on living needs and provided benefits toward accumulating financial benefits for the policyowners throughout the Midwest and southern U.S. until they ceased most domestic sales beginning January 1, 2017.

Our Home Service Insurance segment operates through our subsidiaries SPLIC, MGLIC and SPFIC, and focuses on the life insurance needs of the middle and lower income markets, primarily in Louisiana, Mississippi and Arkansas.  Our products in this segment 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 as well as limited liability, named peril property policies covering dwelling and contents.

Investments [Policy Text Block]

SHORT-TERM INVESTMENTS

The Company considers investments maturing within one year at acquisition as short-term. These securities are carried at fair value.

Investment securities are classified as held-to-maturity, available-for-sale or trading.  Management determines the appropriate classification at the time of purchase.  The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities.  Fixed maturity securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity.  Securities not classified as held-to-maturity are classified as available-for-sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and are not reported in earnings until realized.  Fixed maturities consist primarily of bonds classified as available-for-sale or held-to-maturity.  The Company does not classify any fixed maturities as trading and beginning September 30, 2018, the Company no longer classifies any fixed maturities as held-to-maturity.  Equity securities are measured at fair value beginning January 1, 2018, with the change in fair value recorded through net income. Prior to 2018, changes in equity security fair values were a component of accumulated other comprehensive income.

Unrealized gains (losses) of fixed maturities held as available-for-sale is shown as a separate component of stockholders' equity, net of tax, and is a separate component of comprehensive income.

The Company evaluates all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, in determining if an other-than-temporary impairment ("OTTI") exists pursuant to the accounting guidelines.  In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than amortized cost, the financial conditions and near-term prospects of the issuer, and the ability and intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the Federal government or its agencies, by government-sponsored agencies, or whether downgrades by bond rating agencies have occurred, and reviews of the issuer’s financial condition.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method.  Dividend and interest income is recognized when earned.  Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

If management determines that an investment experienced an OTTI, management must then determine the amount of OTTI to be recognized in earnings.  If management 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 less any current period loss, the OTTI will be separated into the amount representing the credit loss and the amount related to all other factors.  The amount of OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings.  The amount of OTTI related to other factors will be recognized in other comprehensive income, net of applicable taxes.  The previous amortized cost basis less the OTTI recognized in earnings will become the new amortized cost basis of the investment.  If management intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI will be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the consolidated financial statement date.  Any recoveries related to the value of these securities are recorded as an unrealized gain (as other comprehensive income (loss) in stockholders' equity) and not recognized in income until the security is ultimately sold.

The Company from time to time may dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.

Policy loans are reported at unpaid principal balances.

Real estate held for investment consists primarily of land and buildings that are recorded at depreciated cost.  If the fair value of the real estate is less than the carrying value, an impairment loss is recognized and charged to earnings.

Real estate held for sale at December 31, 2019 consisted of the Citizens Academy training facility located near Austin, Texas and at December 31, 2018 consisted of the Company's previous home office location which was sold during 2019.

Other long-term investments consists primarily of Federal Home Loan Bank ("FHLB") common stock and mortgage loans. Mortgage loans on real estate are reported at unpaid principal balances.

The Company had cash equivalents and fixed maturities with an aggregate fair value of $9.6 million and $9.5 million at December 31, 2019 and 2018, respectively, on deposit with various state regulatory authorities to fulfill statutory requirements.

Cash and Cash Equivalents [Policy Text Block]

The Company considers cash equivalents as all securities whose duration does not exceed 90 days at the date of acquisition.

Reinsurance Recoverable [Policy Text Block]

Reinsurance recoverable includes expected reimbursements for policyholder claim amounts in excess of the Company's retention, as well as profit sharing and experience refund accruals.  Reinsurance recoverable is reduced for estimated uncollectible amounts, if any.

Reinsurance premiums, benefits and expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.  The cost of reinsurance related to long duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.  The cost of reinsurance related to short duration contracts is accounted for over the coverage period.  Profit-sharing and similar adjustable provisions are accrued based on the experience of the underlying policies.

Deferred Policy Acquisition Costs and Cost of Customer Relationships Acquired, Policy [Policy Text Block]

Acquisition costs, consisting of commissions and policy issuance, underwriting and agent convention expenses that are directly related to and vary with the successful production of new business are deferred.  These deferred amounts, referred to as deferred policy acquisition costs ("DAC"), are recorded as an asset on the consolidated balance sheets and amortized to income in a systematic manner, based on related contract revenues or gross profits as appropriate.

Traditional life insurance and accident and health insurance acquisition costs are amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing future policy benefit liabilities.  For universal life type contracts and investment contracts that include significant surrender charges or that yield significant revenues from sources other than the investment contract holders' funds, the deferred contract acquisition cost amortization is matched to the recognition of gross profit.  The effect on the DAC asset that would result from realization of unrealized gains or losses is recognized with an offset to accumulated other comprehensive income in consolidated stockholders' equity.  If an internal replacement of insurance or investment contract modification substantially changes a contract as defined in current accounting guidance, then the DAC is written off immediately through income and any new deferrable costs associated with the new replacement are deferred.  If a contract modification does not substantially change the contract, the DAC amortization on the original contract will continue and any acquisition costs associated with the related modification are immediately expensed.

The ending DAC asset balance is calculated at a seriatim level for policies in force at the end of each reporting period based on the remaining unamortized asset. The assumptions used to calculate DAC are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs. The seriatim method ensures that policies lapsed or surrendered during the reporting period are no longer included in the DAC calculation.   This method limits the amount of deferred costs to its estimated realizable value, provided actual experience is comparable to that contemplated in the locked-in assumptions.

Inherent in the capitalization and amortization of DAC are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization.  Approximately 93.6% of our capitalized DAC are attributed to first year and renewal excess commissions.  The remaining 6.4% are attributed to costs that vary with and are directly related to the successful acquisition of new insurance business.  Those costs generally include costs related to the production, underwriting and issuance of new business.

DAC is subject to recoverability testing at the time of policy issuance and loss recognition testing on an annual basis, or when an event occurs that might require loss recognition testing. If loss recognition or impairment is necessary, DAC would be written off to the extent that anticipated future premiums and investment income is insufficient to cover expected future policy benefits and expenses. Loss recognition testing that considers, among other things, actual experience and projected future experience calculates the available premium (gross premium less the benefit and expense portion of premium) for the next 50 years.  DAC is evaluated for recoverability using best estimate assumptions.  Based on the results of DAC recoverability testing and loss recognition testing, management believes that our DAC as of the years ended December 31, 2019 and 2018 limits the amount of deferred costs to its estimated recoverable value.  

The components of DAC from year to year are summarized as follows:

Years ended December 31, (In thousands)	2019			2018		2017
Balance at beginning of period	$	155,747		167,063		167,790
Capitalization of deferred policy acquisition costs	22,255			22,695		29,120
Amortization of deferred policy acquisition costs	(28,268		)	(34,235	)	(29,690	)
Effects of unrealized (gains) losses	(485		)	224		(157	)
Balance at end of period	$	149,249		155,747		167,063

We converted to a new actuarial valuation software solution that provided enhanced modeling capabilities for the ordinary whole life policies of SPLIC as of July 1, 2019 and the ordinary whole life and endowment policies of CICA and CICA Ltd. as of July 1, 2018. The total impact of these system conversions, which impacted both the Home Service Insurance and Life Insurance segments, reflect changes in actuarial valuation estimates associated with the conversion. The impact is reflected in the accompanying consolidated financial statements and summarized in the table below.

(In thousands)	2019			2018
Increase (Decrease)
Consolidated Balance Sheets
DAC	$	(1,396	)	(4,339	)
Future policy benefit reserves:
Life insurance	(2,299		)	(10,197	)
Consolidated Statements of Operations and Comprehensive Income (Loss)
Decrease in future policy benefit reserves	(2,299		)	(10,197	)
Amortization of deferred policy acquisition costs	1,396			4,339
Income before federal income tax	903			5,858
Federal income tax expense	190			1,230
Net income	$	713		4,628

COST OF INSURANCE ACQUIRED

Cost of insurance acquired ("COIA") is established when we purchase a block of insurance.  COIA is amortized over the emerging profit of the related policies using the same assumptions as were used in computing liabilities for future policy benefits.  Inherent in the amortization of COIA are certain management judgments used in the estimation of the ending asset balance and the annual amortization.  The key assumptions used in management's estimates are based upon interest, mortality and lapses at the time of purchase.

A recoverability test that considers, among other things, actual experience and projected future experience is performed at least annually.  These annual recoverability tests are based initially on an estimate of the available premium (gross premium less the benefit and expense portion of premium) for the next 50 years.  Management believes that our COIA is recoverable for the years ended December 31, 2019 and 2018.  This belief is based upon the analysis performed on estimated future results of the block and our annual recoverability testing.

COIA relative to purchased blocks of insurance is summarized as follows:

Years ended December 31, (In thousands)	2019			2018		2017
Balance at beginning of period	$	15,225		17,499		19,415
Amortization	(1,546		)	(2,458	)	(2,129	)
Change in effects of unrealized (gains) losses on COIA	(224		)	184		213
Balance at end of period	$	13,455		15,225		17,499

Estimated amortization of COIA in each of the next five years and thereafter is as follows.  Actual future amortization will differ from these estimates due to variances from estimated future withdrawal assumptions.

(In thousands)	Amount
Cost of Insurance Acquired:
Year:
2020	$	1,237
2021	1,112
2022	1,003
2023	908
2024	822
Thereafter	8,759
	13,841
Effects of unrealized (gains) losses on COIA	(386		)
Total cost of insurance acquired	$	13,455

The value of COIA resulting from our various acquisitions was determined based on the present value of future profits discounted at annual rates ranging from 3.7% to 8.5%.

Goodwill and Other Intangible Assets [Policy Text Block]

Goodwill is the difference between the purchase price in a business combination and the fair value of assets and liabilities acquired and is not amortized.  Other intangible assets include various state insurance licenses, which have been determined to have indefinite useful lives and, therefore, are not amortized. Both goodwill and other intangible assets with indefinite useful lives are subject to annual impairment analysis.

Goodwill is tested for impairment on an annual basis or more frequently if indicators of potential impairment exist. The goodwill testing requires us to compare the estimated fair value of a reporting unit to its carrying value. If the carrying value of the reporting unit is lower than its estimated fair value, no further evaluation is required. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment charge is recorded for that excess, limited to the total amount of goodwill allocated to that reporting unit. We have the option of performing an assessment of certain qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value or proceeding directly to a quantitative impairment test. We elected to apply the quantitative assessment for the goodwill in our reporting units within each of our operating segments as of December 31, 2019 and 2017. We assessed the assumptions used in the 2017 goodwill analysis considering then current circumstances and completed a qualitative review in 2018.

Management’s determination of the fair value of each reporting unit under the accounting guidance incorporates multiple inputs including 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.

As of December 31, 2019, the Company had $12.6 million of goodwill allocated to the Life Insurance segment.  In 2017, we recorded an impairment of $4.6 million in our Home Service Insurance segment. There was no impairment of goodwill in 2019 and 2018 related to our segments. Goodwill is summarized as follows:

Years ended December 31, (In thousands)	2019		2018	2017
Life Insurance Segment:
Balance at January 1,	$	12,624	12,624	12,624
Impairment	—		—	—
Balance at December 31,	$	12,624	12,624	12,624
Home Service Insurance Segment:
Balance at January 1,	$	—	—	4,631
Impairment	—		—	4,631
Balance at December 31,	$	—	—	—
Total Segments:
Balance at January 1,	$	12,624	12,624	17,255
Impairment	—		—	4,631
Balance at December 31,	$	12,624	12,624	12,624

Property and Equipment, Depreciation [Policy Text Block]

Property and equipment are carried at cost less accumulated depreciation.  Depreciation of property and equipment is computed using the straight-line method over the useful lives of the assets, ranging from three to thirty years.  

The following is a summary of property and equipment.

December 31, (In thousands)	2019			2018
Property and equipment:
Home office, land and buildings	$	4,136		4,136
Furniture and equipment	881			963
Electronic data processing equipment and computer software	8,215			7,710
Automobiles	91			91
Real estate and equipment leases (See Note 7)	1,136			—
Total property and equipment	14,459			12,900
Accumulated depreciation	(8,555		)	(6,957	)
Total property and equipment	$	5,904		5,943

Future Policy Benefits and Expenses [Policy Text Block]

Future policy benefit reserves for traditional life insurance are established based on methods and underlying assumptions in accordance with U.S. GAAP and applicable actuarial standards.  Assumptions as to investment yields, expenses, mortality and lapses are based upon our experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviations.

The accrued account balance for non-traditional life insurance and investment contracts is computed as deposits net of withdrawals made by the contract holder, plus amounts credited based on contract specifications, less contract fees and charges assessed, plus any additional interest.  Annuity interest crediting rates range from 2.5% to 5.5% annually.  Benefits and expenses are charged against the account balance to recognize costs as incurred over the estimated lives of the contracts.  Expenses include interest credited to contract account balances and benefits paid in excess of contract account balances.

Unpaid claims on accident and health and specialty property insurance policies represent the estimated liability for benefit expenses, both reported but not paid and incurred but not reported to the Company.  The liability for incurred but not reported claims includes estimates for additional claim amounts due related to reported claims. Liabilities for unpaid claims are estimated using individual case basis valuations and statistical analysis.  Those estimates are subject to the effects of trends in claim severity and frequency.

Anticipated investment income is not considered in determining whether a premium deficiency exists with respect to short-duration contracts.  Premium deposits accrue interest at rates ranging from 2.5% to 6.0% per annum.  The cost of insurance is included in the premium when collected and interest is credited annually to deposit accounts.

The development of liabilities for future policy benefits requires management to make estimates and assumptions regarding mortality, persistency, expense, and investment experience based on historical experience and future expectations of those assumptions.  Actual results could differ materially from estimates.  An additional provision is made on most products to allow for possible adverse deviation from the assumptions assumed.We monitor actual experience and revise assumptions as necessary.

Participating Policies [Policy Text Block]

At December 31, 2019 and 2018, participating business approximated 62.2% and 62.5% of direct life insurance in force, respectively.

Future policy benefits on participating policies are estimated based on net level premium reserves for death and endowment policy benefits with interest rates ranging from 3.2% to 9.0%, and the cash surrender values described in such contracts.  The scaling rate used for the 2019 portfolio ranged between 3.59% for 1 year and then going up to 4.18% over 20 years and remaining there for the duration.  Earnings and dividends on participating policies are allocated based on policies in force.

Policyholder dividends are determined based on the discretion of the Board of the policy issuing subsidiary.  Policyholder dividends are accrued over the premium paying periods of the insurance contract.

Commitments and Contingencies Disclosure [Policy Text Block]

An estimated loss from a contingency is accrued and charged to results of operations only if both of the following conditions are met:

1. Information available prior to the issuance of the consolidated financial statements indicates that it is probable(virtual certainty is not required) that an asset has been impaired or a liability incurred as of the date of the consolidated financial statements; and

2. The amount of the loss can be reasonably estimated.

Reasonable estimation of a possible loss does not require estimating a single amount of the loss. It requires that a loss be accrued if it can be estimated within a range. If an amount within the range is a better estimate than any other amount within the range, that amount is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued.

A gain contingency is an uncertain situation that will be resolved in the future, possibly resulting in a gain. We do not allow the recognition of a gain contingency prior to settlement of the underlying event. If we were to have a material gain contingency, we would disclose it in the notes to the consolidated financial statements.

Premium Revenue and Related Expenses [Policy Text Block]

Premiums on life policies are recognized as earned when due.  Premiums paid in advance on the consolidated balance sheets are held on deposit and accrue interest at rates ranging from 2.5% to 6.0% until such time as the premiums become due. Premiums on accident and health policies are recognized as revenue over the contract period on a pro rata basis.  Benefits and expenses are associated with earned premiums so as to result in the recognition of profits over the estimated lives of the contracts.  This matching is accomplished by means of a provision for future policy benefits and the capitalization and amortization of deferred policy acquisition costs.

Annuity policies, primarily flexible premium fixed annuity products, are accounted for in a manner consistent with accounting for interest bearing financial instruments.  Premium receipts are not reported as revenue, rather as deposit liabilities to annuity contracts.  The annuity products issued do not include fees or other such charges.

Income Taxes [Policy Text Block]

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered.

A deferred tax asset is recorded only if a determination is made that it is more-likely-than-not that the tax treatment on which the deferred tax asset depends will be sustained in the event of an audit.  These determinations inherently involve management's judgment.  In addition, the Company must record a tax valuation allowance with respect to deferred tax assets if it is more-likely-than-not that the tax benefit will not be realized.

Earnings Per Share [Policy Text Block]

Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during each period.  Diluted earnings per share are computed under the if-converted method for convertible securities and the treasury stock method for warrants, giving effect to all potential dilutive common stock, including options, warrants and convertible/redeemable preferred stock.  The basic and diluted earnings per share of Class B common stock are one half the earnings per share of the Class A common stock.

Use of Estimates, Policy [Policy Text Block]

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 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 materially from these estimates.

Reclassification, Policy [Policy Text Block]

Certain amounts presented in prior years have been reclassified to conform to the current presentation.  No individual amounts were material.