Business Overview and History
Citizens, Inc. (CIA) is a leading diversified financial services company specializing in life, living benefits, and final expense insurance. With a rich history spanning over 55 years, the company has established itself as a prominent player in the insurance industry, both domestically and internationally. As the company navigates the evolving landscape, it has implemented a strategic roadmap aimed at delivering improved operating results and sustainable growth in book value per share.
Citizens, Inc. was founded in 1969, initially focusing on providing life insurance products in the United States. In 1975, the company expanded internationally, selling U.S. dollar-denominated whole life insurance, endowment, and critical illness policies to non-U.S. residents, primarily in Latin America and the Pacific Rim. This international expansion has been a significant driver of the company's growth over the years.
The company operates through two primary business segments: Life Insurance and Home Service Insurance. The Life Insurance segment offers a range of products, including U.S. dollar-denominated whole life insurance, endowment, and critical illness policies, primarily to non-U.S. residents located in Latin America and the Pacific Rim. In the domestic market, the company primarily sells whole life final expense insurance and insurance with living benefits.
The Home Service Insurance segment focuses on serving the lower-income markets in Louisiana, Mississippi, and Arkansas. The segment's products consist primarily of small face amount whole life, industrial life, and pre-need policies, which are designed to fund final expenses such as funeral and burial costs. This segment has been an important part of Citizens' business model, providing affordable life insurance policies to a specific demographic.
Throughout its history, Citizens has faced various challenges common to the life insurance industry. In the early 2000s, the company grappled with the impacts of a sustained low interest rate environment, which significantly reduced the overall yield on its investment portfolio. This dynamic put pressure on the company's profit margins as it sought to maintain the spread between guaranteed interest rates credited to policyholders and the interest earned on supporting assets.
More recently, from 2017 through 2021, Citizens experienced a decline of over 20 million in total premium revenue. This was driven by the company's historical reliance on a limited product portfolio and distribution channels. In response, the company shifted its strategy in 2021 under new leadership, focusing on long-term profitable growth through new product development, expanded distribution, and improved customer retention efforts.
The company also previously operated a property insurance business through its Security Plan Fire Insurance Company (SPFIC) subsidiary, but this business was discontinued in June 2023 and SPFIC was dissolved in 2024.
Financial Performance and Ratios
In the latest fiscal year ended December 31, 2024, Citizens reported total revenues of $245.0 million, a 1.8% increase from the previous year's $240.7 million. The company's net income for the year was $14.9 million, down from $24.4 million in the prior year. The decline in net income was primarily attributable to a $3.4 million decrease in investment-related gains and losses, as well as a $3.5 million accrual for legal fees awarded to certain defendants in a trade secret lawsuit.
The company's balance sheet remains strong, with total assets of $1.69 billion as of December 31, 2024, up from $1.67 billion a year earlier. Citizens' debt-to-equity ratio stood at 0.0, indicating a conservative capital structure. The company's book value per share was $3.84 at the end of 2024, up from $3.46 a year earlier.
Key financial ratios for Citizens include: - Gross Profit Margin: 100.0% - Operating Profit Margin: 6.8% - Net Profit Margin: 8.9% - Return on Assets: 1.3% - Return on Equity: 11.5% - Current Ratio: 4.9 - Quick Ratio: 4.9
These ratios suggest that Citizens maintains a healthy financial position, with strong profitability, solvency, and liquidity.
Financials
The Life Insurance segment, which accounted for 76.3% of the company's total direct premiums in 2024, saw a 6.6% increase in direct premiums to $135.7 million, driven by strong sales of new products and an expanded domestic distribution network. The segment's income before federal income tax decreased to $22.9 million in 2024 from $28.6 million in the prior year, primarily due to the investment-related losses and the accrual for legal fees.
The Home Service Insurance segment, representing 24.1% of total direct premiums, experienced a 2.1% decline in direct premiums to $43.2 million in 2024, largely due to strategic actions taken to improve sales quality and persistency. The segment's income before federal income tax decreased to $2.5 million in 2024 from $3.0 million in 2023, mainly attributed to lower premium revenue, investment-related losses, and higher insurance benefits.
In the fourth quarter of 2024, Citizens reported total revenues of $63.7 million, compared to $66.9 million in the same period of 2023. Adjusted total revenues for Q4 2024 were $67.6 million, up from $65.6 million in Q4 2023. Income before federal income tax for Q4 2024 was $3.7 million, down from $8.8 million in Q4 2023, while adjusted income before federal income tax increased to $8.0 million from $7.6 million year-over-year.
Liquidity
Citizens maintains a strong liquidity position, as evidenced by its high current ratio and quick ratio of 4.9. This indicates that the company has ample resources to meet its short-term obligations and fund its operations. The company's conservative capital structure, with a debt-to-equity ratio of 0.0, further supports its financial stability and flexibility.
As of December 31, 2024, Citizens had cash and cash equivalents of $29.3 million. The company also has access to a $20 million senior secured revolving credit facility with Regions Bank, which was renewed in May 2024 for a three-year term. As of the end of 2024, the company had not borrowed any funds against this credit facility, providing additional financial flexibility if needed.
Segment Performance and Outlook
The Life Insurance segment, operated through CICA Life Insurance Company of America (CICA Domestic) and CICA Life A.I. (CICA International), is the company's primary focus. CICA International's international direct premiums comprised approximately 89% of the total direct premiums in the Life Insurance segment and 67% of the company's total consolidated direct premiums in 2024. The domestic Life Insurance business has seen significant growth, with first-year premiums more than doubling in 2024 compared to 2023, driven by expansion into additional states, new product development, and growth in the agent network.
The Home Service Insurance segment, operated through Security Plan Life Insurance Company (SPLIC) and Magnolia Guaranty Life Insurance Company (MGLIC), made up 24% of the company's total consolidated direct premiums in 2024. However, this segment experienced a 2.2% decline in direct life and accident & health premiums in 2024 compared to 2023, primarily due to strategic actions aimed at improving sales quality and persistency.
Looking ahead, Citizens remains focused on its strategic initiatives to drive growth and profitability. The company is actively expanding its domestic distribution network, introducing new products tailored to specific markets, and implementing process improvements and new technologies to enhance the customer experience and agent productivity. Additionally, the company's recent entry into a coinsurance agreement with RGA Reinsurance Company is expected to provide more capacity for growth in its domestic final expense business.
Risks and Challenges
Citizens faces several risks and challenges in its operations, both domestically and internationally. The company's significant international presence exposes it to regulatory risks, foreign currency restrictions, and political instability in the countries where it operates. Failure to comply with the varying laws and regulations in these jurisdictions could result in penalties or legal actions against the company.
Another key risk is the company's reliance on its independent consultants and agents for product distribution. The loss of these producers or the inability to attract and retain effective sales representatives could adversely impact the company's revenues and results of operations.
The insurance industry is also susceptible to various risks, such as the accuracy of pricing assumptions, higher-than-expected policyholder claims, and lower-than-expected policyholder retention. Changes in interest rates and market conditions can also affect the company's investment portfolio and profitability.
In the first quarter of 2024, Citizens faced a legal challenge when a jury trial was held in a trade secret lawsuit filed in 2018 by the company against certain former employees and independent consultants. The jury found that the company should pay approximately $1.3 million to two former independent consultants, and the trial court awarded $3.5 million in legal fees to two other defendants. The company has appealed the judgment against it, adding uncertainty and potential financial impact to its operations.
Conclusion
Citizens, Inc. (CIA) is a well-established insurance provider with a diversified business model and a focus on niche markets. The company's international operations have been a key driver of growth, while its domestic life insurance and home service insurance segments continue to contribute to its overall performance. The recent expansion of the domestic Life Insurance business has shown promising results, with significant growth in first-year premiums.
As Citizens navigates the evolving insurance landscape, it remains committed to its strategic initiatives aimed at driving sustainable growth and enhancing shareholder value. The company's focus on new product development, expanded distribution channels, and improved customer retention efforts has begun to yield positive results, particularly in the domestic market.
However, the company must manage the various risks and challenges inherent in its operations, including regulatory compliance in multiple jurisdictions, potential legal issues, and the need to maintain a strong independent sales force. The recent legal setback highlights the importance of effectively managing legal and operational risks.
Citizens' financial performance will likely depend on its ability to effectively execute on its strategic initiatives while maintaining disciplined underwriting and expense management across its diversified insurance operations. The company's strong liquidity position and conservative capital structure provide a solid foundation for future growth, but careful management of expansion costs and potential risks will be crucial for long-term success in the competitive insurance market.