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Citizens Reports 4Q, 2012 Results

PR Newswire Association LLC

AUSTIN, Texas, March11, 2013 /PRNewswire/ --Citizens, Inc. (NYSE: CIA) reported results today for the fourth quarter and full year ended December31, 2012.

Rick D. Riley, Vice Chairman and President, said, "Our 2012 results reflect increased new business and retention through the low interest rate environment for both of our insurance segments. For the year, our consolidated life insurance premiums increased 5%, driven largely by strong persistency and continued expansion in our international business, where endowment products continue to be our strongest selling product. In addition, we have continued to see modest growth in our home service segment with premiums increasing 1.5% year over year."

Riley added, "We were able to increase invested assets by 7.3% to $901 million from $839 million at year-end 2011 due to premium growth.As a result, we reported investment income growth for the fourth quarter and full year as the higher balances offset the lower yields available in this market.With our conservative investment philosophy, our portfolio is currently yielding just over 3.8% compared with 3.9% in 2011."

(In thousands, except for per share amounts)

Q412

Q411

2012

2011

Premiums

$

46,229



43,982

169,873

161,395

Net investment income

8,422



7,818

   

31,725

   

30,099

 

Net realized investment gains (losses), net

(911)

   

724

   

196

   

765

 

Change in fair value of warrants

137

   

(318)

   

451

   

1,136

 

Total revenue

54,070

   

52,458

   

202,759

   

194,156

 

Net income (loss) applicable to common stock

(297)

   

1,798

   

4,529

   

8,482

 

Net income (loss) per diluted share of Class A common stock

(0.01)

   

0.04

   

0.09

   

0.17

 

Diluted weighted average shares of Class A common stock

49,079

   

48,947

   

49,005

   

48,809

 

Operating income

$

206

   

1,534

   

3,882

   

6,584

 

 

"Further, book value per share of Class A common stock increased 6% to $5.25 at December 31, 2012, compared with $4.97 at year-end 2011.  The 2012  increase was due primarily to fluctuations in the market values of bonds and stocks in our portfolio," Riley said.

Riley commented, "We recognized investment losses in the quarter ending December 31, 2012 related to a $1.3 million other-than-temporary impairment of one coal producing energy bond issuer.  Including that impairment, net realized gains on investments for the full year were lower than the prior year, although we sold previously impaired stock mutual fund holdings in both years.  The sale of those securities allowed us to recover taxes paid on prior year gains and to achieve consolidated return tax savings.  No warrants were outstanding at December 31, 2012, as they were exercised or expired during the year."

Turning to operating income, Riley noted, "Income for the year was reduced by the pressures of the current low interest rate environment on investment income and reserves.  The assumption regarding investment income is a lead driver in the development of reserves and endowment products, which are comprising a significant amount of our new sales, and require higher reserve balances to be established earlier in the product duration.  Whole life products, which accumulate initial reserves at a slower pace, were a smaller percentage of new business in 2012."

Reconciliation of Net Income to Operating Income (a non-GAAP measure)

 

(in thousands, except for per share data)

             
 

Q412

 

Q411

 

2012

 

2011

Net Income (loss)

$

(297)

   

1,798

   

4,529

   

8,482

 

Items excluded in the calculation of operating income:

             

Net realized investment (gains) and losses

911

   

(724)

   

(196)

   

(765)

 

Changes in the fair value of warrants

(137)

   

318

   

(451)

   

(1,136)

 

Pre tax effect of exclusions

774

   

(406)

   

(647)

   

(1,901)

 

Tax effect at 35%

(271)

   

142

   

   

3

 

Operating income

$

206

   

1,534

   

3,882

   

6,584

 
               

 

Non-GAAP Financial Measures - The table above reconciles Net Income to Operating Income. Operating Income is a "Non-GAAP" financial measure that is widely used in our industry to evaluate the performance of underwriting operations. Operating Income excludes the Fair Value Changes of Warrants and the after-tax net effects of Net Realized Investment Gains and Losses. We believe it presents a useful view of the performance of our insurance operations. While we believe disclosure of certain Non-GAAP information is informative, you should not consider this information without also considering the information we present in accordance with GAAP.

INSURANCE OPERATIONS

  • Life Insurance - Our Life Insurance segment primarily issues endowment and ordinary whole life insurance in U.S. Dollar-denominated amounts to foreign residents and domestically across the United States.
    • Premiums – Life insurance premium revenues increased for the fourth quarter and full year of 2012, due to higher international first year and renewal premiums, which have experienced strong persistency as this block of business ages.  Improved new business performance in 2012 reflected strong sales from Colombia, Ecuador, Taiwan, and Venezuela.  Endowment sales represented $14.3 million or 81.9% of new first year premium as of December 31, 2012 compared to $12.3 million and 69.4% for the year in 2011.  In addition, most of our life insurance policies contain a policy loan provision, which allows policyholders to utilize cash value of a policy to pay premiums and keep policies in force.  The policy loan asset balance in the life insurance segment increased 10% year over year. 
    • Benefits and expenses – Life insurance benefits and expenses increased more rapidly than premiums for the fourth quarter and full year of 2012 primarily because endowment products require accumulation of higher reserve balances on the front end when compared to whole life products.  In addition, death claims increased by 5.3% reflecting  more reported claims in 2012 compared to 2011, but was within expected levels.  General expenses decreased in 2012 by 7.5% as we continued to promote efficiencies in our operations. Amortization of deferred acquisition costs increased by 9.5% compared to 2011 as the asset balance increases.
  • Home Service - Our Home Service Insurance segment provides pre-need and final expense ordinary life insurance and annuities to middle and lower income individuals primarily in Louisiana, Mississippi and Arkansas.  Our policies in this segment are sold and serviced through funeral homes and a home service marketing distribution system.
    • Premiums – Home service premiums increased 1.5% over 2011 as this business continues to perform steadily with modest year over year growth.
    • Benefits and expenses – Home service benefits and expenses increased  by 1.7% for the fourth quarter, but were essentially unchanged for the full year of 2012 compared to 2011.  Death benefits were up 19.8% and 9.7% for the quarter and year ended December 31, 2012 from 2011 due to more claims reported in the current year.  In addition, property claims increased 16.3% to $2.3 million in 2012 compared to 2011 due to Hurricane Isaac, which impacted Louisiana policyholders in the later part of 2012.  Both 2012 and 2011 results are negatively impacted by an increase in amortization of deferred acquisition expenses resulting from assumption changes for new issued business relating to the anticipated lower long-term portfolio yield and high lapses experienced in both years.  Our home service policyholders have been negatively impacted by the current economic conditions, including continued high levels of  unemployment throughout the country.

INVESTMENTS

  • Invested assets – Total invested assets including cash and cash equivalents grew 9.7% in 2012, reflecting additional premium income from new and renewal business over the past year.
    • Fixed maturity securities represented 82.7% of the portfolio at year-end 2012, compared with 85.0% at year-end 2011.
    • Equity security holdings increased to $53.7 million at  year-end 2012 from $46.1 million at year-end 2011 as bond proceeds of approximately $7.6 million were reinvested into bond mutual funds to gain additional yield via shorter duration opportunities.
    • Cash and cash equivalents represented 5.9% of total cash, cash equivalents and invested assets at year-end 2012, up from 3.8% in 2011.  These balances fluctuate based upon the timing of premium receipts and bond maturities and investment into fixed maturity investments.
  • Investment income – Net investment income increased 7.7% for the quarter ended December 31, 2012, and 5.4% for the full-year.  The gains were primarily due to higher average investment balances offsetting the lower yields on invested assets.  The policy loan asset balance increased by 10.0% in 2012, resulting in an increase in policy loan income, a component of investment income.
    • Yield - During 2012, average invested assets increased 8.5% while average yield declined to 3.8% compared with 3.9% in 2011.  The average yield for the quarter ended December 31, 2012, was 4.09% compared to 3.47% for the quarter ended December 31, 2011.
    • Duration - Significant calls by issuers of holdings in our fixed maturity securities portfolio, driven by the sustained low interest rate environment, have led to the reinvestment of proceeds at lower yields as market rates have declined.  During 2012, the Company continued significant investments of bonds in state municipals and corporate utility sector issuers with credit ratings ranging from A A to BBB.  The Company began increasing investments in investment-grade corporate, municipal bonds and shorter duration bond mutual funds in 2011 to obtain higher yields.  The average maturity of the fixed income bond portfolio was 12.0 years with an estimated effective maturity of 6.7 years as of December 31, 2012.
  • Realized gains – We recorded an other-than-temporary impairment for the three months and year ended December 31, 2012 totaling $1.3 million related to one issuer of bonds in the coal producing energy sector.  In 2012 and 2011, the Company sold equity mutual funds, which were previously impaired, and other securities for realized gains of $0.6 million and $1.3 million for tax considerations, respectively. 

INVESTOR CONFERENCE CALL

On Tuesday, March 12, Citizens will host a conference call to discuss operating results at 10 a.m. Central Time.  The conference call will be hosted by Rick D. Riley, Vice Chairman and President, Kay Osbourn, Chief Financial Officer, and other members of the Company's management team.  To participate, please dial (888) 637-2456 and ask to join the Citizens, Inc. call.  We recommend accessing the call three to five minutes before the call is scheduled to begin.  A recording of the conference call will be available on Citizens' website at www.citizensinc.com in the Investor Information section under News Release & Publications following the call.

ABOUT CITIZENS, INC.

Citizens, Inc. is a financial services company listed on the New York Stock Exchange under the symbol CIA.  The Company utilizes a three-pronged strategy for growth based upon worldwide sales of U.S. Dollar-denominated whole life cash value insurance policies, life insurance product sales in the U.S. and the acquisition of other U.S. based life insurance companies.

SAFE HARBOR

Information herein contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by words such as "may," "will," "expect," "anticipate" or "continue" or comparable words. In addition, all statements other than statements of historical facts that address activities that the Company expects or anticipates will or may occur in the future are forward-looking statements.  Readers are encouraged to read the SEC reports of the Company, particularly its Form 10-K for the fiscal year ended December 31, 2012, its quarterly reports on Form 10-Q and its current reports on Form 8-K, for the meaningful cautionary language disclosing why actual results may vary materially from those anticipated by management.  The Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in the Company's expectations.  The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by the investment community.

FOR FURTHER INFORMATION CONTACT:
Kay Osbourn
Chief Financial Officer
(512) 837-7100
PR@citizensinc.com

 

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

           
 

Three Months Ended

December 31,

   

Twelve Months Ended

December 31,

 
 

2012

 

2011

 

2012

 

2011

Revenues:

   

(As adjusted)

     

(As adjusted)

Premiums:

             

Life insurance

$

44,562

   

42,297

   

163,170

   

154,778

 

Accident and health insurance

391

   

410

   

1,635

   

1,561

 

Property insurance

1,276

   

1,275

   

5,068

   

5,056

 

Net investment income

8,422

   

7,818

   

31,725

   

30,099

 

Realized investment gains (losses), net

(911)

   

724

   

196

   

765

 

Decrease (increase) in fair value of warrants

137

   

(318)

   

451

   

1,136

 

Other income

193

   

252

   

514

   

761

 

Total revenues

54,070

   

52,458

   

202,759

   

194,156

 

Benefits and expenses:

             

Insurance benefits paid or provided:

             

Claims and surrenders

18,166

   

15,469

   

64,656

   

60,056

 

Increase in future policy benefit reserves

18,883

   

18,581

   

66,676

   

58,264

 

Policyholders' dividends

2,336

   

2,321

   

9,091

   

8,072

 

Total insurance benefits paid or provided

39,385

   

36,371

   

140,423

   

126,392

 

Commissions

11,234

   

10,148

   

39,398

   

38,374

 

Other general expenses

6,651

   

6,297

   

25,664

   

26,040

 

Capitalization of deferred policy acquisition costs

(8,544)

   

(7,290)

   

(29,074)

   

(27,826)

 

Amortization of deferred policy acquisition costs

5,152

   

4,368

   

17,845

   

16,848

 

Amortization of cost of customer relationships acquired

633

   

885

   

2,467

   

2,998

 

Total benefits and expenses

54,511

   

50,779

   

196,723

   

182,826

 

Income (loss) before income tax expense

(441)

   

1,679

   

6,036

   

11,330

 

Income tax expense (benefit)

(144)

   

(119)

   

1,507

   

2,848

 

Net income (loss)

$

(297)

   

1,798

   

4,529

   

8,482

 

Per Share Amounts:

             

Basic and diluted earnings (loss) per share of Class A common stock

$

(0.01)

   

0.04

   

0.09

   

0.17

 

Basic and diluted earnings per share of Class B common stock

$

   

0.02

   

0.05

   

0.09

 

Other comprehensive income (loss):

             

Unrealized gains on available-for-sale securities:

             

Unrealized holding gains (losses) arising during period

(1,976)

   

2,043

   

15,130

   

29,589

 

Reclassification adjustment for (gains) losses included in net income

1,020

   

(1,277)

   

105

   

(1,277)

 

Unrealized gains (losses) on available-for-sale securities, net

(956)

   

766

   

15,235

   

28,312

 

Income tax expense (benefit) on unrealized gains on available-for-sale securities

(317)

   

779

   

5,520

   

10,479

 

Other comprehensive income (loss)

(639)

   

(13)

   

9,715

   

17,833

 

Comprehensive income (loss)

$

(936)

   

1,785

   

14,244

   

26,315

 
               

 

 

Consolidated Statements of Financial Position

December 31,

(In thousands)

       

Assets

2012

 

2011

Investments:

   

(As adjusted)

Fixed maturities available-for-sale, at fair value (cost:  $559,736 and $484,809 in 2012 and 2011, respectively)

$

604,520

   

514,253

 

Fixed maturities held-to-maturity, at amortized cost (fair value:  $193,739 and $230,093 in 2012 and 2011, respectively)

187,008

   

227,500

 

Equity securities available-for-sale, at fair value (cost:  $52,744 and $45,599 in 2012 and 2011, respectively)

53,741

   

46,137

 

Mortgage loans on real estate

1,509

   

1,557

 

Policy loans

42,993

   

39,090

 

Real estate held for investment (less $1,287 and $1,149 accumulated depreciation in 2012 and 2011, respectively)

8,496

   

8,539

 

Other long-term investments

57

   

105

 

Short-term investments

2,340

   

2,048

 

Total investments

900,664

   

839,229

 

Cash and cash equivalents

56,299

   

33,255

 

Accrued investment income

10,304

   

7,787

 

Reinsurance recoverable

9,651

   

9,562

 

Deferred policy acquisition costs

135,569

   

124,542

 

Cost of customer relationships acquired

25,116

   

27,945

 

Goodwill

17,160

   

17,160

 

Other intangible assets

879

   

906

 

Federal income tax receivable

270

   

901

 

Property and equipment, net

7,383

   

7,860

 

Due premiums, net (less $1,345 and $1,698 allowance for doubtful accounts in 2012 and 2011, respectively)

10,527

   

9,169

 

Prepaid expenses

344

   

396

 

Other assets

782

   

800

 

Total assets

$

1,174,948

   

1,079,512

 

 

 

Consolidated Statements of Financial Position, Continued

December 31,

(In thousands)

       

Liabilities and Stockholders' Equity

2012

 

2011

Liabilities:

   

(As adjusted)

Future policy benefit reserves:

     

Life insurance

$

762,319

   

697,502

 

Annuities

51,750

   

47,060

 

Accident and health

5,491

   

5,612

 

Dividend accumulations

11,962

   

10,601

 

Premiums paid in advance

27,455

   

25,291

 

Policy claims payable

11,015

   

10,020

 

Other policyholders' funds

9,440

   

8,760

 

Total policy liabilities

879,432

   

804,846

 

Commissions payable

2,606

   

2,851

 

Deferred federal income tax

17,301

   

13,940

 

Payable for securities in process of settlement

2,358

   

 

Warrants outstanding

   

451

 

Other liabilities

10,143

   

9,382

 

Total liabilities

911,840

   

831,470

 

Stockholders' equity:

     

Common stock:

     

Class A, no par value, 100,000,000 shares authorized, 52,215,852 and 52,089,189 shares issued and outstanding 2012 and 2011, including shares in treasury of 3,135,738 in 2012 and 2011

259,383

   

258,548

 

Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2012 and 2011

3,184

   

3,184

 

Accumulated deficit

(17,335)

   

(21,851)

 

Accumulated other comprehensive income:

     

Unrealized gains on securities, net of tax

28,887

   

19,172

 

Treasury stock, at cost

(11,011)

   

(11,011)

 

Total stockholders' equity

263,108

   

248,042

 

Total liabilities and stockholders' equity

$

1,174,948

   

1,079,512

 

 

 

SOURCE Citizens, Inc.

Wordcount:  2548


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