Citizens, Inc. : Reports Fourth Quarter and Full Year 2011 Results
03/12/2012| 03:45pm US/Eastern
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AUSTIN, Texas, March 12, 2012 /PRNewswire/ -- Citizens, Inc. (NYSE: CIA) reported results today for the fourth quarter and full year ended December 31, 2011.
Rick D. Riley, Vice Chairman and President, said, "Our 2011 results are strong considering the economic environment in which all insurance companies have been operating. For the year, our consolidated life insurance premiums increased 6%, driven largely by strong persistency and continued expansion in our international business, where endowment products continue to grow in popularity."
Riley added, "Due to the healthy premium growth, we were able to increase invested assets by 15.6% to $839 million from $726 million at year-end 2010. 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 4% compared with 4.3% in 2010."
(In thousands, except for per share
amounts) Q411 Q410 2011 2010
---- ---- ---- ----
Premiums $43,982 42,131 161,395 152,052
Net investment income $8,032 6,181 30,956 30,077
Net realized investment gains $724 7,364 765 8,012
Change in fair value of warrants $(318) (148) 1,136 232
Total revenue $52,672 55,734 195,013 191,181
Net income applicable to common stock $1,129 9,055 8,375 15,511
Net income per diluted share of Class A
common stock $0.02 0.19 0.17 0.32
Diluted weighted average shares of Class
A
common stock 48,958 48,718 48,813 48,688
Operating income $976 4,416 6,742 10,071
"Further, book value per share of Class A common stock increased 11.8% to $5.12 at December 31, 2011, compared with $4.58 at year-end 2010. The 2011 year-end book value was up $0.02 from September 30, 2011, due to fluctuations in the market values of bonds in our portfolio," Riley said.
Riley commented, "Net realized gains on investments were significantly lower than the prior year. Although we sold previously impaired mutual fund holdings in both years, in 2010 we had additional realized gains on the sale of below investment-grade securities. The sale of those securities allowed us to recover taxes paid on prior year gains and to accomplish consolidated return tax savings. Despite the substantial reduction in the number of outstanding warrants during 2011, the fair value change of warrants outstanding had a positive effect on results for both 2011 and 2010. We expect the 169,482 remaining warrants will either be exercised or expire in 2012."
Turning to operating income, Riley noted, "By design, our endowment and whole life products should generate equivalent profitability over the long term. In the near term, however, the strong growth of endowment product sales makes year-over-year comparisons difficult. The endowment products require initial accumulation of higher reserve balances. Whole life products, which accumulate initial reserves at a slower pace, were a smaller percentage of new business in 2011.
Reconciliation of Net Income to Operating Income (a non-GAAP measure)
(in thousands, except for per share data)
Q411 Q410 2011 2010
---- ---- ---- ----
Net Income $1,129 9,055 8,375 15,511
====== ===== ===== ======
Items excluded in the calculation
of operating income:
Net realized investment (gains) and
losses $(724) (7,364) (765) (8,012)
Changes in the fair value of
warrants 318 148 (1,136) (232)
--- --- ------ ----
Pre tax effect of exclusions (406) (7,216) (1,901) (8,244)
Tax effect at 35% 253 2,577 268 2,804
Operating income $976 4,416 6,742 10,071
==== ===== ===== ======
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 appropriate, you should not consider this information without also considering the information we present in accordance with GAAP.
Riley added, "In addition, the prolonged low interest rate environment is affecting our reserve development assumptions. Because of assumption changes for policies issued in 2011, fourth quarter results reflect an approximately $0.8 million increase in policy reserves and $1.4 million increase in amortization of deferred acquisition costs. Final assumptions used for the fourth quarter and the full year reflect the lower investment yield that resulted in 2011."
INSURANCE OPERATIONS
-- Life Insurance - Our Life Insurance segment primarily issues ordinary
whole life insurance in U.S. Dollar-denominated amounts to foreign
residents in approximately 30 countries through approximately 2,300
independent marketing consultants, and domestically through almost 300
independent marketing firms and consultants throughout the United
States.
-- Premiums - Life insurance premium revenues increased for the fourth
quarter and full year of 2011, due to higher international renewal
premiums, which have experienced strong persistency as this block of
business ages. First year premiums also increased in the current
year, reflecting improved new business performance. Sales from
Colombia, Ecuador, Taiwan, and Venezuela represented the majority of
the first year premium increase. In addition, most of our life
insurance policies contain a policy loan provision, which allows the
policyholder 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 10.5% year over year.
-- Benefits and expenses - Life insurance benefits and expenses
increased more rapidly than premiums for the fourth quarter and full
year of 2011 primarily because endowment products require
accumulation of higher reserve balances on the front end when
compared to whole life products. In addition, general expenses
increased in 2011 as part of allocations based upon routine time
studies, resulting in approximately $1.5 million higher current year
expenses versus the prior year. Amortization of deferred acquisition
costs decreased by 2.9% as improved persistency lowered amortization
but it was largely offset by $1 million of increased amortization
expense related to the assumption changes for lower long-term
portfolio yield on new issued business.
-- 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 utilizing approximately
530 employees and independent agents.
-- Premiums - Home service premiums increased 2.7% from the 2010
results, inclusive of a rate increase of approximately 5.8% for
Security Plan Fire Insurance Company that became effective January
1, 2011.
-- Benefits and expenses - Home service benefits and expenses increased
by 10.4% for the fourth quarter, but were essentially unchanged for
the full year of 2011. Claims and surrenders were down 2.3% from
2010 reported amounts, which had a positive impact on results, as
did the lower allocation for general expenses. Current year results
were negatively impacted by an increase in amortization of deferred
acquisition expenses resulting from the assumption changes for new
issued business relating to the anticipated lower long-term
portfolio yield and a high lapse rate experienced in 2011 compared
to 2010.
INVESTMENTS
-- Invested assets - Total invested assets grew 15.6% in 2011, reflecting
additional premium income from new and renewal business over the past
year.
-- Fixed maturity securities represented 88.4% of the portfolio at
year-end 2011, compared with 90.4% at year-end 2010.
-- Equity security holdings increased to $46.1 million at year-end 2011
from $23.3 million at year-end 2010 as bond proceeds of
approximately $31.5 million were reinvested into bond mutual funds
to gain additional yield via shorter duration opportunities.
-- Cash and cash equivalents represented 3.8% of total cash, cash
equivalents and invested assets at year-end 2011, down from 6.4% in
2010, reflecting the timing of calls and reinvestment.
-- Investment income - Net investment income increased 29.9% for the
quarter ended December 31, 2011, and 2.9% for the full-year. The gains
were primarily due to higher average investment balances that offset the
lower yields on invested assets. The policy loan asset balance
increased by 9.8% in 2011, resulting in an increase in policy loan
income, a component of investment income.
-- Yield - During 2011, average invested assets increased 10.2% while
average yield declined to 4.03% compared with 4.32% in 2010. The
average yield for the quarter ended December 31, 2011, was 4.09%
compared to 3.47% for the quarter ended December 31, 2010.
-- Duration - Significant calls by issuers of fixed maturity securities
have led to the reinvestment of proceeds at lower yields as market
rates have declined. During 2011, the Company continued significant
investment in bonds of U.S. Government-sponsored enterprises.
Additionally, the Company made investments in investment-grade
corporate, municipal bonds and shorter duration bond mutual funds to
obtain higher yields. The average maturity of the fixed income bond
portfolio was 13.6 years with an estimated effective maturity of 5.7
years as of December 31, 2011.
-- Realized gains - In 2011 and 2010, the Company sold equity mutual funds,
which were previously impaired, and other securities for realized gains
of $1.3 million and $6.4 million for tax considerations, respectively.
In addition, we realized net gains of $1.3 million in 2010 on sales of
securities from an acquired entity that were primarily below investment
grade quality.
INVESTOR CONFERENCE CALL
On Tuesday, March 13, 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, 2011, its quarterly reports on Form 10Q 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 Operations
(In thousands, except per share amounts)
Twelve Months
Three Months Ended Ended
December 31, December 31,
------------ ------------
2011 2010 2011 2010
---- ---- ---- ----
Revenues:
Premiums:
Life
insurance $42,297 40,551 154,778 145,665
Accident and
health
insurance 410 362 1,561 1,577
Property
insurance 1,275 1,218 5,056 4,810
Net
investment
income 8,032 6,181 30,956 30,077
Realized
investment
gains, net 724 7,364 765 8,012
Decrease
(increase)
in fair
value of
warrants (318) (148) 1,136 232
Other income 252 206 761 808
--- --- --- ---
Total
revenues 52,672 55,734 195,013 191,181
------ ------ ------- -------
Benefits and
expenses:
Insurance
benefits
paid or
provided:
Claims and
surrenders 15,469 14,628 60,056 61,038
Increase in
future
policy
benefit
reserves 18,581 15,694 58,264 46,420
Policyholders'
dividends 2,321 2,161 8,072 7,485
----- ----- ----- -----
Total
insurance
benefits
paid or
provided 36,371 32,483 126,392 114,943
Commissions 10,148 10,200 38,374 36,585
Other
general
expenses 6,511 6,523 26,897 27,085
Capitalization
of deferred
policy
acquisition
costs (7,263) (8,014) (29,433) (27,960)
Amortization
of deferred
policy
acquisition
costs 5,371 3,878 18,620 17,840
Amortization
of cost of
customer
relationships
acquired 885 747 2,998 3,058
--- --- ----- -----
Total
benefits
and
expenses 52,023 45,817 183,848 171,551
------ ------ ------- -------
Income
before
income tax
expense 649 9,917 11,165 19,630
Income tax
expense
(benefit) (480) 862 2,790 4,119
---- --- ----- -----
Net income $1,129 9,055 8,375 15,511
====== ===== ===== ======
Per Share
Amounts:
Basic
earnings
per share
of Class A
common
stock $0.01 0.19 0.17 0.32
===== ==== ==== ====
Basic
earnings
per share
of Class B
common
stock $0.01 0.09 0.08 0.16
===== ==== ==== ====
Diluted
earnings
per share
of Class A
common
stock $0.02 0.19 0.17 0.32
===== ==== ==== ====
Diluted
earnings
per share
of Class B
common
stock $0.02 0.09 0.08 0.16
===== ==== ==== ====
Consolidated Statements of Financial Position
December 31,
(In thousands)
Assets 2011 2010
------ ---- ----
Investments:
Fixed maturities available-for-sale, at fair value
(cost: $484,809 and $578,412 in 2011 and
2010, respectively) $514,253 575,737
Fixed maturities held-to-maturity, at amortized
cost
(fair value: $230,093 and $79,103 in
2011 and 2010, respectively) 227,500 80,232
Equity securities available-for-sale, at fair
value
(cost: $45,599 and $19,844 in 2011 and
2010, respectively) 46,137 23,304
Mortgage loans on real estate 1,557 1,489
Policy loans 39,090 35,585
Real estate held for investment (less $1,149 and
$1,017 accumulated
depreciation in 2011 and 2010,
respectively) 8,539 9,200
Other long-term investments 105 148
Short-term investments 2,048 -
----- ---
Total investments 839,229 725,695
Cash and cash equivalents 33,255 49,723
Accrued investment income 7,787 7,433
Reinsurance recoverable 9,562 9,729
Deferred policy acquisition costs 136,300 125,684
Cost of customer relationships acquired 27,945 31,631
Goodwill 17,160 17,160
Other intangible assets 906 1,019
Federal income tax receivable 901 1,914
Property and equipment, net 7,860 7,101
Due premiums, net (less $1,698 and $1,568 allowance
for doubtful
accounts in 2011 and 2010, respectively) 9,169 8,537
Prepaid expenses 396 474
Other assets 800 406
--- ---
Total assets $1,091,270 986,506
========== =======
(Continued)
Consolidated Statements of Financial Position, Continued
December 31,
(In thousands)
Liabilities and Stockholders' Equity 2011 2010
------------------------------------ ---- ----
Liabilities:
Future policy benefit reserves:
Life insurance $697,502 $637,140
Annuities 47,060 42,096
Accident and health 5,612 5,910
Dividend accumulations 10,601 9,498
Premiums paid in advance 25,291 23,675
Policy claims payable 10,020 10,540
Other policyholders' funds 8,760 8,191
----- -----
Total policy liabilities 804,846 737,050
Commissions payable 2,851 2,538
Deferred federal income taxes 18,055 9,410
Warrants outstanding 451 1,587
Other liabilities 9,382 8,287
----- -----
Total liabilities 835,585 758,872
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock:
Class A, no par value, 100,000,000
shares authorized,
52,089,189 shares issued and outstanding
in 2011 and 2010, 258,548 256,703
including shares in treasury of
3,135,738 in 2011 and 2010
Class B, no par value, 2,000,000 shares
authorized,
1,001,714 shares issued and outstanding
in 2011 and 2010 3,184 3,184
Accumulated deficit (14,208) (22,581)
Accumulated other comprehensive income:
Unrealized gains on securities, net of
tax 19,172 1,339
Treasury stock, at cost (11,011) (11,011)
------- -------
Total stockholders' equity 255,685 227,634
------- -------
Total liabilities and stockholders'
equity $1,091,270 986,506
========== =======
SOURCE Citizens, Inc.
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