Citizens, Inc. (NYSE:CIA) is a diversified insurance company that has been fulfilling the needs of policyholders for over 55 years. The company operates through two main segments: Life Insurance and Home Service Insurance, providing a range of insurance products to customers across the United States and in over 75 different countries.

In the fiscal year ended December 31, 2023, Citizens reported annual net income of $24,437,000, annual revenue of $240,680,000, annual operating cash flow of $22,056,000, and annual free cash flow of $21,614,000. These financial metrics demonstrate the company's ability to generate consistent profitability and strong cash flows to support its operations and growth initiatives.

For the first quarter of 2024, the company reported net income of $4,542,000, a slight decrease from the $4,872,000 reported in the same period of the prior year. Total revenues for the quarter increased by 3.2% to $57,712,000, driven by higher life insurance premiums, investment-related gains, and net investment income. However, total benefits and expenses also increased by 7.3% to $52,787,000, primarily due to higher death claims and matured endowment benefits paid.

Business Overview

Citizens' Life Insurance segment focuses on providing U.S. dollar-denominated endowment contracts and ordinary whole life insurance to non-U.S. residents, primarily in international markets. These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may incorporate additional coverage and annuity benefits. The company's domestic life insurance business, operated through CICA Domestic, offers a range of products, including ordinary whole life, final expense, life products with living benefits, critical illness, and credit life and disability policies.

The Home Service Insurance segment, which operates through subsidiaries SPLIC, MGLIC, and SPFIC, focuses on serving the life insurance needs of the middle- and lower-income markets, primarily in Louisiana, Mississippi, and Arkansas. The segment's products consist primarily of small face amount ordinary whole life, industrial life, and pre-need policies, as well as critical illness and property insurance policies.

In recent years, the company has implemented strategic initiatives to introduce new products tailored to its specific markets and expand its distribution channels both domestically and internationally. These efforts have contributed to a 61% increase in total insurance issued in the first three months of 2024, from $170.3 million in the same period of 2023 to $274.5 million.

Financials

Financial Ratios and Liquidity

Citizens' financial ratios demonstrate its strong financial position. As of March 31, 2024, the company had a current ratio of 8.18, a quick ratio of 14.72, and a cash ratio of 2.89, indicating ample liquidity to meet its short-term obligations.

The company's return on assets (ROA) and return on equity (ROE) for the fiscal year ended December 31, 2023 were 1.5% and 14.2%, respectively, reflecting its ability to generate profitable returns on its asset base and shareholders' equity.

Liquidity

Liquidity and Capital Resources

Citizens' primary capital resources include its portfolio of fixed maturity securities, which accounted for 86.7% of its total cash and invested assets as of March 31, 2024, as well as its cash and cash equivalents. The company's liquidity is primarily derived from its cash flow from operations, which provided $6.8 million in net cash during the first quarter of 2024.

The company also has access to a $20 million senior secured revolving credit facility, which it renewed in May 2024 for an additional three-year term. As of March 31, 2024, the company had not borrowed any funds against the credit facility and was in compliance with all covenants.

Geographical Breakdown

Citizens' Life Insurance segment generates a significant portion of its premiums from international markets, with 67% of total insurance issued in the first three months of 2024 coming from its international operations. The company's top international markets include Colombia, Taiwan, Venezuela, Ecuador, and Argentina.

The company's domestic life insurance business, which accounted for 33% of total insurance issued in the first quarter of 2024, has been a key driver of the company's growth, benefiting from the introduction of new products and expanded distribution channels.

Revenue Breakdown and Trends

Citizens' total revenues are primarily composed of life insurance premiums, net investment income, and investment-related gains or losses. In the first quarter of 2024, the company reported a 3.2% increase in total revenues compared to the same period in the prior year, driven by the following:

Life Insurance Premiums:

Total life insurance premiums increased by 6.3% in the first quarter of 2024, primarily due to a 77% increase in first-year premiums, which was partially offset by a slight decline in renewal premiums.

Net Investment Income:

Net investment income increased by 2.4% in the first quarter of 2024, reflecting higher yields on the company's fixed maturity securities portfolio and growth in its alternative investment assets.

Investment-Related Gains/Losses:

The company recorded investment-related gains of $963,000 in the first quarter of 2024, compared to losses of $288,000 in the same period of the prior year, driven by changes in the fair value of its equity securities and limited partnership investments.

Risks and Challenges

While Citizens has demonstrated its ability to navigate the challenges of the insurance industry, the company faces several risks and uncertainties that could impact its future performance:

1. Policyholder Behavior: The company is exposed to the risk of higher-than-expected early policyholder surrenders, which could negatively impact its liquidity and profitability. The company has implemented various retention initiatives to mitigate this risk, but it remains a key concern.

2. Regulatory Environment: As a regulated insurance provider, Citizens is subject to various capital and solvency requirements imposed by state and federal authorities. Failure to maintain the required capital levels could result in regulatory actions that could adversely affect the company's operations and financial position.

3. Competitive Landscape: The insurance industry is highly competitive, and Citizens faces competition from both traditional and emerging players. The company's ability to maintain its market share and profitability depends on its ability to adapt to changing customer preferences and market conditions.

Outlook

Guidance and Outlook

In its latest quarterly report, Citizens did not provide any specific financial guidance or outlook for the remainder of the fiscal year. However, the company's management has expressed confidence in the company's strategic initiatives and its ability to continue generating strong cash flows and profitability.

Conclusion

Citizens, Inc. is a well-established and diversified insurance provider that has demonstrated its ability to navigate the challenges of the industry and deliver consistent financial performance. The company's focus on international markets, new product development, and distribution channel expansion has contributed to its recent growth, and its strong liquidity and capital position provide a solid foundation for future success. While the company faces various risks and uncertainties, its experienced management team and strategic initiatives position it well to continue serving the insurance needs of its customers and generating value for its shareholders.