CIA-2013.3.31-10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
___________________________

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2013
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from  _____ to _____
Commission File Number:  000-16509
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
Colorado
84-0755371
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
400 East Anderson Lane, Austin, TX
78752
(Address of principal executive offices)
(Zip Code)
 
(512) 837-7100
 
(Registrant's telephone number, including area code)
 
N/A
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  (Check one):
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of April 29, 2013, the Registrant had 49,080,114 shares of Class A common stock, no par value, outstanding and 1,001,714 shares of Class B common stock outstanding.
 






























THIS PAGE INTENTIONALLY LEFT BLANK



TABLE OF CONTENTS
 
 
 
 
Page Number
Part I.
Financial Information
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
Part II.
Other Information
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.


1

Table of Contents

PART I.  FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Financial Position
(In thousands)
 
 
 
 
 
 
 
 
 
March 31, 2013
 
December 31, 2012
Assets
(Unaudited)
 
 
Investments:
 
 
 
Fixed maturities available-for-sale, at fair value (cost:  $603,947 and $559,736 in 2013 and 2012, respectively)
$
647,682

 
604,520

Fixed maturities held-to-maturity, at amortized cost (fair value:  $174,966 and $193,739 in 2013 and 2012, respectively)
167,707

 
187,008

Equity securities available-for-sale, at fair value (cost:  $52,553 and $52,744 in 2013 and 2012, respectively)
54,029

 
53,741

Mortgage loans on real estate
1,376

 
1,509

Policy loans
44,872

 
42,993

Real estate held for investment (less $1,321 and $1,287 accumulated depreciation in 2013 and 2012, respectively)
8,503

 
8,496

Other long-term investments
56

 
57

Short-term investments
2,853

 
2,340

Total investments
927,078

 
900,664

Cash and cash equivalents
42,608

 
56,299

Accrued investment income
10,912

 
10,304

Reinsurance recoverable
6,829

 
9,651

Deferred policy acquisition costs
137,311

 
135,569

Cost of customer relationships acquired
24,606

 
25,116

Goodwill
17,160

 
17,160

Other intangible assets
872

 
879

Federal income tax receivable

 
270

Property and equipment, net
7,279

 
7,383

Due premiums, net (less $1,285 and $1,345 allowance for doubtful accounts in 2013 and 2012, respectively)
10,231

 
10,527

Prepaid expenses
1,613

 
344

Other assets
1,077

 
782

Total assets
$
1,187,576

 
1,174,948


(Continued)

See accompanying notes to consolidated financial statements.

2

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Financial Position
(In thousands, except share amounts)
 
 
 
 
 
 
 
 
 
March 31, 2013
 
December 31, 2012

Liabilities and Stockholders' Equity
(Unaudited)
 
 
Liabilities:
 
 
 
Policy liabilities:
 
 
 
Future policy benefit reserves:
 
 
 
Life insurance
$
778,481

 
762,319

Annuities
52,450

 
51,750

Accident and health
2,775

 
5,491

Dividend accumulations
12,300

 
11,962

Premiums paid in advance
29,629

 
27,455

Policy claims payable
10,783

 
11,015

Other policyholders' funds
8,505

 
9,440

Total policy liabilities
894,923

 
879,432

Commissions payable
2,095

 
2,606

Federal income tax payable
1,130

 

Deferred federal income tax
16,180

 
17,301

Payable for securities in process of settlement

 
2,358

Other liabilities
9,246

 
10,143

Total liabilities
923,574

 
911,840

Commitments and contingencies (Note 7)


 


Stockholders' equity:
 

 
 

Class A, no par value, 100,000,000 shares authorized, 52,215,852 shares issued and outstanding in 2013 and 2012, including shares in treasury of 3,135,738 in 2013 and 2012
259,383

 
259,383

Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2013 and 2012
3,184

 
3,184

Accumulated deficit
(16,479
)
 
(17,335
)
Accumulated other comprehensive income:
 

 
 

Unrealized gains on securities, net of tax
28,925

 
28,887

Treasury stock, at cost
(11,011
)
 
(11,011
)
Total stockholders' equity
264,002

 
263,108

Total liabilities and stockholders' equity
$
1,187,576

 
1,174,948



See accompanying notes to consolidated financial statements.


3

Table of Contents

 
 
 
 
 
 
 
 
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIE
Consolidated Statements of Comprehensive Income
Three Months Ended March 31,
(In thousands, except per share amounts)
(Unaudited)

 
2013
 
2012
Revenues:
 
 
 
 
 
Premiums:
 
 
 
 
 
 
 
Life insurance
 
 
$
39,414

 
 
 
37,406

Accident and health insurance
 
 
349

 
 
 
413

Property insurance
 
 
1,177

 
 
 
1,277

Net investment income
 
 
8,389

 
 
 
7,577

Realized investment gains, net
 
 
31

 
 
 
98

Decrease in fair value of warrants
 
 

 
 
 
36

Other income
 
 
186

 
 
 
98

Total revenues
 
 
49,546

 
 
 
46,905

Benefits and expenses:
 
 
 

 
 
 
 

Insurance benefits paid or provided:
 
 
 

 
 
 
 

Claims and surrenders
 
 
14,806

 
 
 
14,754

Increase in future policy benefit reserves
 
 
16,959

 
 
 
14,141

Policyholders' dividends
 
 
2,074

 
 
 
1,874

Total insurance benefits paid or provided
 
 
33,839

 
 
 
30,769

Commissions
 
 
9,058

 
 
 
8,664

Other general expenses
 
 
6,699

 
 
 
6,616

Capitalization of deferred policy acquisition costs
 
 
(6,362
)
 
 
 
(5,939
)
Amortization of deferred policy acquisition costs
 
 
4,626

 
 
 
4,126

Amortization of cost of customer relationships acquired
 
 
578

 
 
 
576

Total benefits and expenses
 
 
48,438

 
 
 
44,812

Income before federal income tax
 
 
1,108

 
 
 
2,093

Federal income tax expense
 
 
252

 
 
 
581

Net income
 
 
856

 
 
 
1,512

Per Share Amounts:
 
 
 

 
 

 
 

Basic earnings per share of Class A common stock
$
0.02

 
 

 
0.03

 
 

Basic earnings per share of Class B common stock
0.01

 
 

 
0.02

 
 

Diluted earnings per share of Class A common stock
0.02

 
 

 
0.03

 
 

Diluted earnings per share of Class B common stock
0.01

 
 

 
0.02

 
 

Other comprehensive income:
 

 
 

 
 

 
 

Unrealized gains on available-for-sale securities:
 

 
 

 
 

 
 

Unrealized holding gains arising during period
 

 
96

 
 

 
2,561

Reclassification adjustment for gains included in net income
 

 
(31
)
 
 

 
(86
)
Unrealized gains on available-for-sale securities, net
 

 
65

 
 

 
2,475

Income tax expense on unrealized gains on available-for-sale securities
 

 
27

 
 

 
896

Other comprehensive income
 

 
38

 
 

 
1,579

Comprehensive income
 

 
$
894

 
 

 
3,091

See accompanying notes to consolidated financial statements.

4

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31,
(In thousands)
(Unaudited)
 
 
 
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
856

 
1,512

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Realized gains on sale of investments and other assets
(31
)
 
(98
)
Net deferred policy acquisition costs
(1,736
)
 
(1,813
)
Amortization of cost of customer relationships acquired
578

 
576

Decrease in fair value of warrants

 
(36
)
Depreciation
320

 
299

Amortization of premiums and discounts on investments
2,297

 
1,015

Deferred federal income tax benefit
(1,148
)
 
(636
)
Change in:
 

 
 

Accrued investment income
(608
)
 
(1,066
)
Reinsurance recoverable
2,822

 
(32
)
Due premiums
296

 
498

Future policy benefit reserves
14,504

 
14,026

Other policyholders' liabilities
1,345

 
370

Federal income tax receivable
1,400

 
1,297

Commissions payable and other liabilities
(1,408
)
 
190

Other, net
(1,410
)
 
(890
)
Net cash provided by operating activities
18,077

 
15,212

Cash flows from investing activities:
 

 
 

Sale of fixed maturities, available-for-sale
58

 
503

Maturities and calls of fixed maturities, available-for-sale
15,851

 
70,619

Maturities and calls of fixed maturities, held-to-maturity
18,465

 
22,000

Purchase of fixed maturities, available-for-sale
(64,046
)
 
(37,650
)
Purchase of fixed maturities, held-to-maturity

 
(42,508
)
Calls of equity securities, available-for-sale
200

 
325

Principal payments on mortgage loans
133

 
11

Increase in policy loans, net
(1,879
)
 
(1,080
)
Sale of other long-term investments
1

 
2

Purchase of other long-term investments
(42
)
 
(69
)
Purchase of property and equipment
(181
)
 
(215
)
Purchase of short-term investments
(531
)
 

Net cash provided by (used in) investing activities
(31,971
)
 
11,938


5

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Three Months Ended March 31,
(In thousands)
(Unaudited)
 
2013
 
2012
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
Warrants exercised
$

 
68

Annuity deposits
1,242

 
1,586

Annuity withdrawals
(1,039
)
 
(963
)
Net cash provided by financing activities
203

 
691

Net increase (decrease) in cash and cash equivalents
(13,691
)
 
27,841

Cash and cash equivalents at beginning of year
56,299

 
33,255

Cash and cash equivalents at end of period
$
42,608

 
61,096

Supplemental disclosures of operating activities:
 

 
 

Cash paid (received) during the period for income taxes, net
$

 
(79
)

Supplemental Disclosures of Non-Cash Investing Activities:
None.

See accompanying notes to consolidated financial statements.


6

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2013
(Unaudited)


(1) Financial Statements

Basis of Presentation and Consolidation

The accompanying consolidated financial statements of Citizens, Inc. and its wholly-owned subsidiaries have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP").

The consolidated financial statements include the accounts and operations of Citizens, Inc. ("Citizens"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Citizens National Life Insurance Company ("CNLIC"), Computing Technology, Inc. ("CTI") and Insurance Investors, Inc. ("III").  Citizens and its wholly-owned subsidiaries are collectively referred to as "the Company," "we," "us" or "our."

The consolidated statements of financial position for March 31, 2013, and the consolidated statements of comprehensive income and cash flows for the three-month periods ended March 31, 2013 and 2012, have been prepared by the Company without audit.  In the opinion of management, all adjustments to present fairly the financial position, results of operations, and changes in cash flows at March 31, 2013 and for comparative periods have been made.  The consolidated financial statements have been prepared in accordance with U.S. GAAP accounting principles for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”).  Accordingly, the financial statements do not include all of the information and footnotes required for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2012.  Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

We provide primarily life insurance and a small amount of health insurance policies through our insurance subsidiaries:  CICA, SPLIC, and CNLIC.  CICA and CNLIC issue ordinary whole-life policies, credit life and disability, burial insurance, pre-need policies, and accident and health related policies, throughout the Midwest and southern United States.  CICA also issues ordinary whole-life policies to non-U.S. residents.  SPLIC offers final expense and home service life insurance in Louisiana, Arkansas and Mississippi and SPFIC, a wholly-owned subsidiary of SPLIC, writes a limited amount of property insurance in Louisiana.

CTI provides data processing systems and services, as well as furniture and equipment, to the Company.  III provides aviation transportation to the Company.

Use of Estimates

The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

The most significant estimates include those used in the evaluation of other-than-temporary impairments on debt and equity securities and valuation allowances on investments, actuarially determined assets and liabilities and assumptions, goodwill impairment, valuation allowance on deferred tax assets, and contingencies relating to litigation and regulatory matters.  Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Consolidated Financial Statements.

Reclassification

Reclassifications have been made in the current year related to certain prior year reported amounts to provide consistent presentation.


7

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

Significant Accounting Policies

For a description of significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in our 2012 Form 10-K Annual Report, which should be read in conjunction with these accompanying Consolidated Financial Statements.

(2) Accounting Pronouncements

Accounting Standards Recently Adopted

In February 2013, the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), which requires enhanced reporting of such amounts either on the face of the financial statements or in the notes to the financial statements.  Under ASU 2013-02, the type of reclassification out of accumulated other comprehensive income, as defined under current GAAP, will dictate whether the disclosure must provide the effect of the reclassification on the respective financial statement line items or whether cross-referencing to other disclosures that provide additional detail about the reclassification will be required.  The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012.  We have included the enhanced disclosures in the financial statements.



8

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

(3) Segment Information

The Company has three reportable segments:  Life Insurance, Home Service Insurance, and Other Non-Insurance Enterprises.  The accounting policies of the segments are in accordance with U.S. GAAP and are the same as those used in the preparation of the consolidated financial statements.  The Company evaluates profit and loss performance based on U.S. GAAP income before federal income taxes for its three reportable segments.

The Company has no reportable differences between segments and consolidated operations.
 
 
 
 
 
 
 
 
 
Three Months Ended
 
March 31, 2013
 
Life
Insurance
 
Home
Service
Insurance
 
Other
Non-Insurance
Enterprises
 
Consolidated
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
Premiums
$
30,117

 
10,823

 

 
40,940

Net investment income
4,904

 
3,180

 
305

 
8,389

Realized investment gains, net

 
30

 
1

 
31

Other income
63

 
90

 
33

 
186

Total revenue
35,084

 
14,123

 
339

 
49,546

Benefits and expenses:
 
 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
9,338

 
5,468

 

 
14,806

Increase in future policy benefit reserves
16,042

 
917

 

 
16,959

Policyholders' dividends
2,059

 
15

 

 
2,074

Total insurance benefits paid or provided
27,439

 
6,400

 

 
33,839

Commissions
5,579

 
3,479

 

 
9,058

Other general expenses
2,852

 
3,266

 
581

 
6,699

Capitalization of deferred policy acquisition costs
(5,086
)
 
(1,276
)
 

 
(6,362
)
Amortization of deferred policy acquisition costs
3,985

 
641

 

 
4,626

Amortization of cost of customer relationships acquired
167

 
411

 

 
578

Total benefits and expenses
34,936

 
12,921

 
581

 
48,438

Income (loss) before income tax expense
$
148

 
1,202

 
(242
)
 
1,108


 
 
 
 
 
 
 
 

9

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)



 
Three Months Ended
 
March 31, 2012
 
Life
Insurance
 
Home
Service
Insurance
 
Other
Non-Insurance
Enterprises
 
Consolidated
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
Premiums
$
28,169

 
10,927

 

 
39,096

Net investment income
4,158

 
3,155

 
264

 
7,577

Realized investment gains, net
2

 
87

 
9

 
98

Decrease in fair value of warrants

 

 
36

 
36

Other income
57

 
6

 
35

 
98

Total revenue
32,386

 
14,175

 
344

 
46,905

Benefits and expenses:
 

 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
9,927

 
4,827

 

 
14,754

Increase in future policy benefit reserves
13,218

 
923

 

 
14,141

Policyholders' dividends
1,862

 
12

 

 
1,874

Total insurance benefits paid or provided
25,007

 
5,762

 

 
30,769

Commissions
5,022

 
3,642

 

 
8,664

Other general expenses
2,920

 
2,964

 
732

 
6,616

Capitalization of deferred policy acquisition costs
(4,512
)
 
(1,427
)
 

 
(5,939
)
Amortization of deferred policy acquisition costs
3,651

 
475

 

 
4,126

Amortization of cost of customer relationships acquired
209

 
367

 

 
576

Total benefits and expenses
32,297

 
11,783

 
732

 
44,812

Income (loss) before income tax expense
$
89

 
2,392

 
(388
)
 
2,093





10

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

(4) Earnings Per Share

The following tables set forth the computation of basic and diluted earnings per share.
 
 
 
 
 
Three Months Ended
 
March 31, 2013
 
March 31, 2012
 
(In thousands,
except per share amounts)
Basic and diluted earnings per share:
 
 
 
Numerator:
 
 
 
Net income
$
856

 
1,512

Net income allocated to Class A common stock
$
848

 
1,497

Net income allocated to Class B common stock
8

 
15

Net income
$
856

 
1,512

Denominator:
 
 
 
Weighted average shares of Class A outstanding - basic
49,080

 
48,959

Weighted average shares of Class A outstanding - diluted
49,080

 
49,004

Weighted average shares of Class B outstanding - basic and diluted
1,002

 
1,002

Basic earnings per share of Class A common stock
$
0.02

 
0.03

Basic earnings per share of Class B common stock
0.01

 
0.02

Diluted earnings per share of Class A common stock
0.02

 
0.03

Diluted earnings per share of Class B common stock
0.01

 
0.02


(5) Investments

The Company invests primarily in fixed maturity securities, which totaled 84.1% of total investments and cash and cash equivalents at March 31, 2013.
 
March 31, 2013
 
December 31, 2012
 
Carrying
Value
 
% of Total
Carrying Value
 
Carrying
Value
 
% of Total
Carrying Value
 
(In thousands)
 
 
 
(In thousands)
 
 
Fixed maturity securities
$
815,389

 
84.1
%
 
$
791,528

 
82.7
%
Equity securities
54,029

 
5.6
%
 
53,741

 
5.6
%
Mortgage loans
1,376

 
0.1
%
 
1,509

 
0.2
%
Policy loans
44,872

 
4.6
%
 
42,993

 
4.5
%
Real estate and other long-term investments
8,559

 
0.9
%
 
8,553

 
0.9
%
Short-term investments
2,853

 
0.3
%
 
2,340

 
0.2
%
Cash and cash equivalents
42,608

 
4.4
%
 
56,299

 
5.9
%
Total cash, cash equivalents and investments
$
969,686

 
100.0
%
 
$
956,963

 
100.0
%


11

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)


The following tables represent the cost, gross unrealized gains and losses and fair value for fixed maturities and equity securities as of the periods indicated.
 
March 31, 2013
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Fixed maturities:
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$
10,155

 
3,581

 

 
13,736

U.S. Government-sponsored enterprises
69,444

 
3,584

 
14

 
73,014

States and political subdivisions
314,560

 
17,756

 
1,182

 
331,134

Foreign governments
105

 
34

 

 
139

Corporate
204,478

 
19,724

 
190

 
224,012

Commercial mortgage-backed
416

 
16

 
2

 
430

Residential mortgage-backed
4,789

 
429

 
1

 
5,217

Total available-for-sale securities
603,947

 
45,124

 
1,389

 
647,682

Held-to-maturity securities:
 

 
 

 
 

 
 

U.S. Government-sponsored enterprises
16,482

 
458

 

 
16,940

States and political subdivisions
118,638

 
5,957

 
293

 
124,302

Corporate
32,587

 
1,144

 
7

 
33,724

Total held-to-maturity securities
167,707

 
7,559

 
300

 
174,966

Total fixed maturities
$
771,654

 
52,683

 
1,689

 
822,648

Equity securities:
 

 
 

 
 

 
 

Stock mutual funds
$
10,463

 
905

 

 
11,368

Bond mutual funds
41,504

 
396

 
185

 
41,715

Common stock
17

 

 
2

 
15

Preferred stock
569

 
362

 

 
931

Total equity securities
$
52,553

 
1,663

 
187

 
54,029



12

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

 
December 31, 2012
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Fixed maturities:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
U.S. Treasury securities
$
10,170

 
3,773

 

 
13,943

U.S. Government-sponsored enterprises
81,788

 
3,815

 
22

 
85,581

States and political subdivisions
265,812

 
17,227

 
777

 
282,262

Foreign governments
105

 
36

 

 
141

Corporate
195,755

 
20,536

 
286

 
216,005

Commercial mortgage-backed
481

 
17

 
2

 
496

Residential mortgage-backed
5,625

 
469

 
2

 
6,092

Total available-for-sale securities
559,736

 
45,873

 
1,089

 
604,520

Held-to-maturity securities:
 

 
 

 
 

 
 

U.S. Government-sponsored enterprises
28,632

 
514

 

 
29,146

States and political subdivisions
125,634

 
5,435

 
378

 
130,691

Corporate
32,742

 
1,160

 

 
33,902

Total held-to-maturity securities
187,008

 
7,109

 
378

 
193,739

Total fixed maturity securities
$
746,744

 
52,982

 
1,467

 
798,259

Equity securities:
 

 
 

 
 

 
 

Stock mutual funds
$
10,463

 
250

 
28

 
10,685

Bond mutual funds
41,504

 
541

 
129

 
41,916

Common stock
17

 

 
2

 
15

Preferred stock
760

 
365

 

 
1,125

Total equity securities
$
52,744

 
1,156

 
159

 
53,741

 
At March 31, 2013, the Company had $5.2 million of mortgage-backed security holdings based on amortized cost, of which $4.8 million, or 92.3%, were residential U.S. Government-sponsored issues.  Mortgage-backed securities are also referred to as securities not due at a single maturity date throughout this report.  The majority of the Company's equity securities are diversified stock and bond mutual funds.
 
Valuation of Investments in Fixed Maturity and Equity Securities

Held-to-maturity securities are reported in the financial statements at amortized cost and available-for-sale securities are reported at fair value.

The Company monitors all debt and equity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews.  The assessment of whether impairments have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value.  The Company determines other-than-temporary impairment by reviewing relevant evidence related to the specific security issuer as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

When an other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis.  If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary impairment is recognized in earnings equal to the

13

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

entire difference between the investment's cost and its fair value at the balance sheet date.  If the Company does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security before recovery of its amortized cost basis, the other-than-temporary impairment is separated into the following: (a) the amount representing the credit loss; and (b) the amount related to all other factors.  The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.  The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income, net of applicable taxes.  The previous amortized cost basis less the other-than-temporary impairment recognized in earnings becomes the new amortized cost basis of the investment.  The new amortized cost basis is not adjusted for subsequent recoveries in fair value.

The Company evaluates whether a credit impairment exists for debt securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; (d) the length of time to which the fair value has been less than the amortized cost of the security; and (e) the payment structure of the security.  The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process.  Quantitative review includes information received from third party sources such as financial statements, pricing and rating changes, liquidity and other statistical information.  Qualitative factors include judgments related to business strategies, economic impacts on the issuer and overall judgment related to estimates and industry factors.  The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates.  These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value.  In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer.

The primary factors considered in evaluating whether an impairment exists for an equity security include, but are not limited to: (a) the length of time and the extent to which the fair value has been less than the cost of the security; (b) changes in the financial condition, credit rating and near-term prospects of the issuer; (c) whether the issuer is current on contractually obligated payments; and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery.

The Company did not recognize any other-than-temporary impairments ("OTTI") during the three months ended March 31, 2013 and 2012.


14

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

The following tables present the fair values and gross unrealized losses of fixed maturities and equity securities that have remained in a continuous unrealized loss position for the periods indicated.
 
March 31, 2013
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
(In thousands, except for # of securities)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government-sponsored enterprises
$
1,673

 
14

 
4

 

 

 

 
1,673

 
14

 
4

States and political subdivisions
83,191

 
843

 
97

 
6,365

 
339

 
4

 
89,556

 
1,182

 
101

Corporate
29,883

 
190

 
18

 

 

 

 
29,883

 
190

 
18

Commercial mortgage-backed

 

 

 
48

 
2

 
1

 
48

 
2

 
1

Residential mortgage-backed

 

 

 
51

 
1

 
1

 
51

 
1

 
1

Total available-for-sale securities
114,747

 
1,047

 
119

 
6,464

 
342

 
6

 
121,211

 
1,389

 
125

Held-to-maturity securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

States and political subdivisions
26,685

 
293

 
25

 

 

 

 
26,685

 
293

 
25

Corporate
2,212

 
7

 
2

 

 

 

 
2,212

 
7

 
2

Total held-to-maturity securities
28,897

 
300

 
27

 

 

 

 
28,897

 
300

 
27

Total fixed maturities
$
143,644

 
1,347

 
146

 
6,464

 
342

 
6

 
150,108

 
1,689

 
152

Equity securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Bond mutual funds
$
9,301

 
123

 
2

 
2,938

 
62

 
2

 
12,239

 
185

 
4

Common stocks
15

 
2

 
1

 

 

 

 
15

 
2

 
1

Total equities
$
9,316

 
125

 
3

 
2,938

 
62

 
2

 
12,254

 
187

 
5


As of March 31, 2013, the Company had 6 available-for-sale securities and no held-to-maturity securities that were in an unrealized loss position for greater than 12 months.  These securities consisted of municipals and mortgage-backed securities.


15

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

 
12/31/2012
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
(In thousands, except for # of securities)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government-sponsored enterprises
$
10,603

 
22

 
9

 

 

 

 
10,603

 
22

 
9

States and political subdivisions
54,115

 
443

 
61

 
5,099

 
334

 
2

 
59,214

 
777

 
63

Corporate
22,316

 
286

 
16

 

 

 

 
22,316

 
286

 
16

Commercial mortgage-backed
94

 
2

 
1

 

 

 

 
94

 
2

 
1

Residential mortgage-backed

 

 

 
52

 
2

 
1

 
52

 
2

 
1

Total available-for-sale securities
87,128

 
753

 
87

 
5,151

 
336

 
3

 
92,279

 
1,089

 
90

Held-to-maturity securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

States and political subdivisions
40,611

 
378

 
32

 

 

 

 
40,611

 
378

 
32

Total held-to-maturity securities
40,611

 
378

 
32

 

 

 

 
40,611

 
378

 
32

Total fixed maturities
$
127,739

 
1,131

 
119

 
5,151

 
336

 
3

 
132,890

 
1,467

 
122

Equity securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Stock mutual funds
$

 

 

 
972

 
28

 
1

 
972

 
28

 
1

Bond mutual funds
3,335

 
88

 
1

 
2,959

 
41

 
2

 
6,294

 
129

 
3

Common stock
15

 
2

 
1

 

 

 

 
15

 
2

 
1

Total equities
$
3,350

 
90

 
2

 
3,931

 
69

 
3

 
7,281

 
159

 
5

 
We have reviewed these securities for the periods ended March 31, 2013 and December 31, 2012 and determined that no other-than-temporary impairment exists based on our evaluation of the credit worthiness of the issuers and the fact that we do not intend to sell the investments nor is it likely that we will be required to sell the securities before recovery of their amortized cost bases which may be maturity.  We continue to monitor all securities on an on-going basis, and future information may become available which could result in impairments being recorded.


16

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

The amortized cost and fair value of fixed maturity securities at March 31, 2013 by contractual maturity are shown in the table below.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
March 31, 2013
 
Amortized
Cost
 
Fair
Value
 
(In thousands)
Available-for-sale securities:
 
 
 
Due in one year or less
$
235,637

 
253,011

Due after one year through five years
81,964

 
88,031

Due after five years through ten years
124,791

 
134,658

Due after ten years
156,350

 
166,335

   Securities not due at a single maturity date
5,205

 
5,647

Total available-for-sale securities
603,947

 
647,682

Held-to-maturity securities:
 

 
 

Due in one year or less
13,236

 
13,349

Due after one year through five years
34,427

 
35,047

Due after five years through ten years
46,058

 
49,283

Due after ten years
73,986

 
77,287

Total held-to-maturity securities
167,707

 
174,966

Total fixed maturities
$
771,654

 
822,648


The securities not due at a single maturity date are primarily mortgage-backed obligations of U.S. Government-sponsored enterprises and corporate securities.

The Company uses the specific identification method of the individual security to determine the cost basis used in the calculation of realized gains and losses related to security sales.  Proceeds and gross realized gains from sales of securities for the three months ended March 31, 2013 and 2012 are summarized as follows.
 
 
Fixed Maturities, Available-for-sale
 
 
Equity Securities
 
 
Three Months Ended
 
 
Three Months Ended
 
 
March 31, 2013
 
 
March 31, 2012
 
 
2013
 
2012
 
 
2013
 
2012
 
(In thousands)
Proceeds
 
$
58

 
503

 
 

 

Gross realized gains
 
$
1

 
1

 
 

 

Gross realized losses
 
$

 

 
 

 

 
During the three months ended March 31, 2013, one fixed maturity security was sold which resulted in a minimal realized gain. There were no securities sold at a loss during the three month period ended March 31, 2013 or 2012. There were no securities sold from the held-to-maturity portfolio for the three months ended March 31, 2013 or 2012.


17

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

(6) Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  We hold available-for-sale fixed maturity securities and equity securities, which are carried at fair value.

Fair value measurements are generally based upon observable and unobservable inputs.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information.  We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:

Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or whose significant value drivers are observable.
Level 3 - Instruments whose significant value drivers are unobservable.

Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments.

Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes.  These models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments.  All significant inputs are observable, or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace.  Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, municipal securities and certain mortgage and asset-backed securities.

Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information.  This category consists of two private placement mortgage-backed securities.


18

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

The following tables set forth our assets and liabilities that are measured at fair value on a recurring basis as of the dates indicated.
 
March 31, 2013
Available-for-sale investments
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasury and U.S. Government-sponsored enterprises
$
13,736

 
73,014

 

 
86,750

States and political subdivisions

 
331,134

 

 
331,134

Corporate

 
224,012

 

 
224,012

Commercial mortgage-backed

 
61

 
369

 
430

Residential mortgage-backed

 
5,217

 

 
5,217

Foreign governments

 
139

 

 
139

Total fixed maturities
13,736

 
633,577

 
369

 
647,682

Equity securities:
 

 
 

 
 

 
 

Stock mutual funds
11,368

 

 

 
11,368

Bond mutual funds
41,715

 

 

 
41,715

Common stock
15

 

 

 
15

Preferred stock
931

 

 

 
931

Total equity securities
54,029

 

 

 
54,029

Total financial assets
$
67,765

 
633,577

 
369

 
701,711


 
December 31, 2012
Available-for-sale investments
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasury and U.S. Government-sponsored enterprises
$
13,943

 
85,581

 

 
99,524

States and political subdivisions

 
282,262

 

 
282,262

Corporate

 
216,005

 

 
216,005

Commercial mortgage-backed

 
109

 
387

 
496

Residential mortgage-backed

 
6,092

 

 
6,092

Foreign governments

 
141

 

 
141

Total fixed maturities
13,943

 
590,190

 
387

 
604,520

Equity securities:
 

 
 

 
 

 
 

Stock mutual funds
10,685

 

 

 
10,685

Bond mutual funds
41,916

 

 

 
41,916

Common stock
15

 

 

 
15

Preferred stock
1,125

 

 

 
1,125

Total equity securities
53,741

 

 

 
53,741

Total financial assets
$
67,684

 
590,190

 
387

 
658,261

 

19

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

Financial Instruments Valuation

Fixed maturity securities, available-for-sale.  At March 31, 2013, our fixed maturity securities, valued using a third-party pricing source, totaled $633.6 million for Level 2 assets and comprised 90.3% of total reported fair value of our financial assets.  The Level 1 and Level 2 valuations are reviewed and updated quarterly through random testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades.  In addition, we obtain information relative to the third-party pricing models and review model parameters for reasonableness.  Fair values for Level 3 assets are based upon unadjusted broker quotes that are non-binding, and consist of two private placement mortgage-backed securities with a total value of $0.4 million.  Our Level 3 assets are current relative to principal and interest payments and are considered immaterial to our financial statements.  For the three months ended March 31, 2013, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third party prices were changed from the values received.

Equity securities, available-for-sale.  Our available-for-sale equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices.

The following table presents additional information about fixed maturity securities measured at fair value on a recurring basis that are classified as Level 3 assets and for which we have utilized significant unobservable inputs to determine fair value.

March 31,
2013
 
December 31,
2012
 
(In thousands)
 
 
 
 
Balance at beginning of period
$
387

 
459

Total realized and unrealized gains (losses)


 
 

Included in net income

 

Included in other comprehensive income
(1
)
 
(6
)
Principal paydowns
(17
)
 
(66
)
Transfer in and (out) of Level 3

 

Balance at end of period
$
369

 
387


We review the fair value hierarchy classifications each reporting period.  Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets.  Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. There were no transfers in or out of Level 1 or 2.

Financial Instruments not Carried at Fair Value

Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments.  The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions.


20

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

The carrying amount and fair value for the financial assets and liabilities on the consolidated balance sheets not otherwise disclosed for the periods indicated are as follows:
 
March 31, 2013
 
December 31, 2012
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
Fixed maturities, held-to-maturity
$
167,707

 
174,966

 
187,008

 
193,739

Mortgage loans
1,376

 
1,417

 
1,509

 
1,503

Policy loans
44,872

 
44,872

 
42,993

 
42,993

Short-term investments
2,853

 
2,853

 
2,340

 
2,340

Cash and cash equivalents
42,608

 
42,608

 
56,299

 
56,299

Financial liabilities:
 

 
 

 
 

 
 

Annuity benefit reserves
52,450

 
58,239

 
51,750

 
54,981


Fair values for fixed income securities, which are characterized as Level 2 assets in the fair value hierarchy, are based on quoted market prices for the same or similar securities.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other assumptions, including a discount rate and estimates of future cash flows.

Mortgage loans are secured principally by residential and commercial properties.  Weighted average interest rates for these loans were approximately 6.5% and 6.6% as of March 31, 2013 and December 31, 2012, respectively, with maturities ranging from 1 to 30 years.  Management estimated the fair value using an annual interest rate of 6.25% at March 31, 2013.  Our mortgage loans are considered Level 3 assets in the fair value hierarchy.

Policy loans had a weighted average annual interest rate of 7.7% as of March 31, 2013 and December 31, 2012, and no specified maturity dates.  The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets.  These loans typically carry an interest rate that is tied to the crediting rate applied to the related policy and contract reserves.  Policy loans are an integral part of the life insurance policies we have in force, cannot be valued separately and are not marketable.  Therefore, the fair value of policy loans approximates the carrying value and policy loans are considered Level 3 assets in the fair value hierarchy.
 
The fair value of short-term investments approximate carrying value due to their short-term nature.  Our short-term investments are considered Level 2 assets in the fair value hierarchy.
 
The fair value of cash and cash equivalents approximate carrying value and are characterized as Level 1 assets in the fair value hierarchy.
 
The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 assets, was estimated at March 31, 2013 using discounted cash flows based upon a swap rate curve with interest rates ranging from 0.24% to 4.03% based upon swap rates adjusted for various risk adjustments. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

(7) Commitments and Contingencies

We are a defendant in a lawsuit filed on August 6, 1999, in the Texas District Court, Austin, Texas, now styled Delia Bolanos Andrade, et al., Plaintiffs, v. Citizens Insurance Company of America, et al., Defendants in which a class was originally certified by the trial court and reversed by the Texas Supreme Court in 2007 with an order to the trial court to conduct further proceedings

21

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2013
(Unaudited)

consistent with its ruling.  The underlying lawsuit alleged that certain life insurance policies CICA made available to non-U.S. residents, when combined with a policy feature that allowed certain cash benefits to be assigned to two non-U.S. trusts for the purpose of accumulating ownership of our Class A common stock, along with allowing the policyholders to make additional contributions to the trusts, were actually offers and sales of securities that occurred in Texas by unregistered dealers in violation of the Texas securities laws.  The remedy sought was rescission and return of the insurance premium payments.  On December 9, 2009, the trial court denied the recertification of the class after conducting additional proceedings in accordance with the Texas Supreme Court's ruling.  The remaining plaintiffs must now proceed individually, and not as a class, if they intend to pursue their claims against us.  Since the December 9, 2009 trial court ruling, no individual cases have been further pursued by the plaintiffs.  The probability of the plaintiffs further pursuing their cases individually remains unknown.  An estimate of any possible loss or range of losses cannot be made at this time in regard to individuals pursuing claims.  However, should the plaintiffs further pursue their claims individually, we intend to vigorously defend any proceedings.

In 2007 and in the aftermath of Hurricane Katrina, the Attorney General for the State of Louisiana filed suit in the Civil District Court for the Parish of New Orleans (later removed to the United States District Court for the Eastern District of Louisiana) against SPFIC and every other homeowner insurer doing business in the State of Louisiana, on behalf of the State of Louisiana, as assignee, and on behalf of certain Road Home fund recipients.  In April 2013, SPFIC and the State of Louisiana reached a confidential settlement agreement resolving substantially all claims against SPFIC in the Road Home matter for approximately $183,000. This amount has been accrued in the March 31, 2013 financial statements and did not have a material impact on the consolidated financials.

SPFIC is vigorously defending a number of matters in various stages of development filed in the aftermath of Hurricane Katrina and Hurricane Rita in addition to the Road Home Litigation, including a number of individual lawsuits, which are immaterial to the Company's financial statements.

We are defending these claims vigorously. However, in doing so, we continue to incur significant defense costs, including attorneys' fees, other direct litigation costs and the expenditure of substantial amounts of management time that otherwise would be devoted to our business.

By letter dated September 7, 2012, three state departments of treasury (or equivalent state agencies) notified the Company they intend to audit Citizens, Inc. and certain of its affiliates for compliance with unclaimed property laws.  As of December 31, 2012, all three states had agreed to allow the Company to complete its own internal audit during 2013. The Company is currently performing the internal audit related to unclaimed property for all legal reporting entities. This audit began in the prior year and based upon the review to date, we have identified certain p