Citizens Inc. (CIA, Financial) filed Quarterly Report for the period ended 2010-09-30.
Citizens Inc. has a market cap of $351.6 million; its shares were traded at around $7.23 with a P/E ratio of 24.1 and P/S ratio of 2.
The decrease in investment income in 2010 from equity securities resulted from the disposal of securities throughout 2009, primarily related to an acquired portfolio with a book value of $1.3 million and the disposal of certain of SPLICs mutual funds totaling $16.1 million in the fourth quarter of 2009. Policy loans have increased primarily from policyholders using the cash value accumulated on their policies to pay premiums and continue their insurance coverage. The increase in the asset balance of policy loans has resulted in a correlating increase in investment income. Other investment income for the nine months ended September 30, 2009 resulted from a legal settlement of $0.2 million in 2009 in connection with a defaulted bond investment.
Realized Gains (Losses), Net. The Company recorded net realized losses of $0.1 million, related to bond holdings in the third quarter of 2010. The net realized gains of $0.6 million during the nine months of 2010 were primarily the result of sales of several available-for-sale debt and equity securities, including some securities that had previously been impaired. The Company recorded a valuation allowance of $45,000 during the first quarter of 2010 on a non-performing mortgage loan. The net realized gains in 2009 were primarily due to sales of fixed maturity securities for the three and nine months ended September 30, 2009. An other-than-temporary impairment of $27,000 was recorded during the current quarter of 2010 related to one bond in default. In the first quarter of 2009, the Company recorded realized losses of $111,000 relating to other-than-temporary impairments.
Increase in Future Policy Benefit Reserves. Reserving assumptions are reviewed to ensure that our original assumptions at the time of policy issuance related to interest, mortality, withdrawals, and settlement expenses are based upon managements best judgment. The Company modified these assumptions during the current year with respect to new policies issued, which resulted in an increase to reserves of $0.5 million. In addition, the Company recognized adjustments to reserves related to two valuation database discrepancies that resulted in a decrease to reserves of $0.6 million. There was a value per unit error related to fully paid up policies under one plan in duration twenty-one and another plan where surrender charges were not properly recorded. The net impact of these reserve items during the quarter ended September 30, 2010 was a reduction in reserves of $0.1 million.
Amortization of Deferred Policy Acquisition Costs. Amortization decreased for the three and nine months ended September 30, 2010 to $3.0 million and $11.4 million compared to the same periods in 2009 as our persistency has improved. Persistency was impacted in 2009 by one newly-recruited consultant, which resulted in higher amortization expense in 2009 as policies sold by this former consultant lapsed.
Federal Income Tax. The effective tax rate for the three and nine months ended September 30, 2010 was 44.1% and 33.5% versus 33.7% and 22.1% for the same periods in 2009. Tax differences impact the enacted tax rate when they result in differences between taxable income and expense that do not affect both the financial reporting and tax bases of accounting. The rate variance from the statutory rate of 35% occurred because changes in fair value of our Class A common stock warrants are not taxable items. In addition, intercompany transactions related to CIA shares held by subsidiaries that were redeemed by Citizens, Inc. during the current year were eliminated under current consolidation rules for financial reporting purposes, but result in taxable transactions and increased the current year effective tax rate. The additional tax expense related to these transactions totaled $0.9 million and $1.4 million for the three and nine months ended September 30, 2010, respectively.
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Citizens Inc. has a market cap of $351.6 million; its shares were traded at around $7.23 with a P/E ratio of 24.1 and P/S ratio of 2.
Highlight of Business Operations:
The Company has been striving to reach a goal set by our founder and CEO, Harold E. Riley, approximately ten years ago to reach $1.0 billion in assets by 2010. This quarter ended September 30, 2010, with positive earnings and market value increases on our invested assets, the Company has moved over the one billion dollar mark to reach its goal. With steady operations under our founders leadership, we have grown from total assets of $267.8 million at December 31, 2000 to slightly over $1.0 billion today.The decrease in investment income in 2010 from equity securities resulted from the disposal of securities throughout 2009, primarily related to an acquired portfolio with a book value of $1.3 million and the disposal of certain of SPLICs mutual funds totaling $16.1 million in the fourth quarter of 2009. Policy loans have increased primarily from policyholders using the cash value accumulated on their policies to pay premiums and continue their insurance coverage. The increase in the asset balance of policy loans has resulted in a correlating increase in investment income. Other investment income for the nine months ended September 30, 2009 resulted from a legal settlement of $0.2 million in 2009 in connection with a defaulted bond investment.
Realized Gains (Losses), Net. The Company recorded net realized losses of $0.1 million, related to bond holdings in the third quarter of 2010. The net realized gains of $0.6 million during the nine months of 2010 were primarily the result of sales of several available-for-sale debt and equity securities, including some securities that had previously been impaired. The Company recorded a valuation allowance of $45,000 during the first quarter of 2010 on a non-performing mortgage loan. The net realized gains in 2009 were primarily due to sales of fixed maturity securities for the three and nine months ended September 30, 2009. An other-than-temporary impairment of $27,000 was recorded during the current quarter of 2010 related to one bond in default. In the first quarter of 2009, the Company recorded realized losses of $111,000 relating to other-than-temporary impairments.
Increase in Future Policy Benefit Reserves. Reserving assumptions are reviewed to ensure that our original assumptions at the time of policy issuance related to interest, mortality, withdrawals, and settlement expenses are based upon managements best judgment. The Company modified these assumptions during the current year with respect to new policies issued, which resulted in an increase to reserves of $0.5 million. In addition, the Company recognized adjustments to reserves related to two valuation database discrepancies that resulted in a decrease to reserves of $0.6 million. There was a value per unit error related to fully paid up policies under one plan in duration twenty-one and another plan where surrender charges were not properly recorded. The net impact of these reserve items during the quarter ended September 30, 2010 was a reduction in reserves of $0.1 million.
Amortization of Deferred Policy Acquisition Costs. Amortization decreased for the three and nine months ended September 30, 2010 to $3.0 million and $11.4 million compared to the same periods in 2009 as our persistency has improved. Persistency was impacted in 2009 by one newly-recruited consultant, which resulted in higher amortization expense in 2009 as policies sold by this former consultant lapsed.
Federal Income Tax. The effective tax rate for the three and nine months ended September 30, 2010 was 44.1% and 33.5% versus 33.7% and 22.1% for the same periods in 2009. Tax differences impact the enacted tax rate when they result in differences between taxable income and expense that do not affect both the financial reporting and tax bases of accounting. The rate variance from the statutory rate of 35% occurred because changes in fair value of our Class A common stock warrants are not taxable items. In addition, intercompany transactions related to CIA shares held by subsidiaries that were redeemed by Citizens, Inc. during the current year were eliminated under current consolidation rules for financial reporting purposes, but result in taxable transactions and increased the current year effective tax rate. The additional tax expense related to these transactions totaled $0.9 million and $1.4 million for the three and nine months ended September 30, 2010, respectively.
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