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Citizens, Inc. is an insurance holding company serving the life insurance needs of individuals in the United States and in more than 35 countries around the world. Their core operations include:
For more than 30 years Citizens and its predecessors have participated in the foreign marketplace through the issuance of US Dollar denominated ordinary whole life insurance to foreign nationals. In the past, these insurance companies have focused on the top 3-5% of the population of the country in terms of income and net worth. In recent years, however, there has been a shift to encompass a broader spectrum of the population, as upper middle classes develop in Latin America and the Pacific Rim. 
These insurance products are made available using third-party marketing organizations and independent marketing consultants. Their number of independent consultants has expanded over the years in this segment to approximately 2,350. 
Historically, most of their international business has come from Latin America. However,in 2004 the Pacific Rim began to represent a meaningful and growing source of new business. 
For the nine months ended September 31, 2008, Citizens Life Insurance segment generated revenue of $85.1 million, accounting for 69.0% of their total revenue, compared to revenue of $81.4 million, or 67.4% of total revenue for the same period in 2007. 
Their domestic Life Insurance segment provides ordinary whole life, credit life insurance, and final expense policies to middle income families or individuals in certain markets in the Midwest and southern U.S. The majority of their revenues in this market are the result of acquisitions of domestic life insurance companies since 1987. 
Through a subsidiary, Citizens provides final expense ordinary life insurance to middle and lower income individuals, primarily in Louisiana. Policies in this segment are sold and serviced through the home service marketing distribution system utilizing agents who work on a route system to collect premiums and service policyholders.
For the nine months ended September 30, 2008, revenue from this segment was $38.6 million, accounting for 31.3% of total revenue, compared to revenue of $39.2 million, or 32.4% of total revenue, during the same period in 2007. 
As an increasing amount of the world population reaches retirement age, Citizens will benefit from increased demand for living products rather than death products, as aging baby boomers will require cash accumulation to provide expenses to meet their lifetime needs. Citizens ordinary life products are designed to accumulate cash values to provide for living expenses in a policy owner’s later years, while continuously providing a death benefit.
Market volatility over the past few years has created many problems for some companies in the life insurance industry. Citizens equity holdings have been limited to 8.2% of total invested assets as of September 30, 2008 and 6.1% at December 31, 2007.
Citizens recorded a loss of $223,000 during the quarter ended September 30, 2008, resulting from the other-than-temporary impairment of one Lehman Brothers bond holding. The majority of their investment portfolio is held in debt instruments in US Government sponsored enterprises. As of September 30, 2008, 71.5% of their fixed maturity securities were invested in US Government sponsored enterprises, including Fannie Mae and Freddie Mac. The recent collapse related to these companies has not affected their bond holdings in these entities yet.
Citizens holds substantial fixed maturity investments, which comprised over 84.6% of their investment portfolio as of September 30, 2008. These investments are mainly exposed to changes in US Treasury rates. Their fixed maturities investments include US Government sponsored enterprises, US Government bonds, securities issued by government agencies, and corporate bonds. Approximately 71.5% of the fixed maturities Citizens owned at September 30, 2008 are backed by US Government agencies. 
Changes in interest rates typically have a sizable effect on the fair values of debt and equity securities. The interest rate of the ten-year U.S. Treasury bond decreased slightly to 3.8% during the quarter ended September 30, 2008 from 4%, at December 31, 2007. Additionally, the world economy struggled through the credit crisis, with many large banks and financial intuitions writing off large amounts of bad investments or filing for bankruptcy. This current financial crisis caused Citizens unrealized losses to increase to $21.3 million for the quarter ended September 30, 2008, on a portfolio of $577.9 million. 
Citizens states that they do not have any exposure to sub prime assets, collateralized debt obligations, or risky mortgage backed investments. 
Changes in the level or volatility of equity prices affect the value of equity securities that Citizens is expose to. However, their equity investments portfolio was less than 10% (total of 8.2%) of their total investments at September 30, 2008. Therefore, significant decreases in the equity markets would not have a major impact on their investment portfolio. 
Net income for the nine months ended September 30, 2008 was $4.9 million, compared to $10.6 million for the same period of 2007. The variance is attributable to a decrease in income in the Home Service segment; resulting from property losses incurred by Hurricanes Gustav and Ike, higher commissions, and higher death claims. 
Total revenues for the nine months ended September 30, 2008 amounted to $123.4 million, a 2.1% increase over total revenue of $120.9 million reported the same period a year earlier. Revenue from the Life Insurance segment amounted to $85.1 million, compared to $81.4 million, reflecting continued strong renewal premium on the international business. Revenue from Home Service decreased slightly to $38.6 million from $39.2 million. 
Total assets for the nine months ended September 30, 2008 amounted to $812.9 million, compared to $787.9 million at December 31, 2007. Total liabilities amounted to $635.6 million as of September 31, 2008, compared to total liabilities of $597.5 million at December 31, 2007. 
Stockholders’ equity at September 30, 2008 was $164.9 million, compared to $176.2 million at December 31, 2007. The decrease in 2008 was largely due to income earned during the period of $4.9 million, offset by an increase in unrealized losses on investments of $19.2 million for the nine months ended September 30, 2008. 
Investments decreased to $577.9 million at September 30, 2008 from $585.3 million at December 31, 2007, primarily because of the increase in unrealized losses. 
Cash flows from their insurance operations have been sufficient to meet current needs. Cash flows from operating activities were $34.7 million and $22.1 million for the nine months ended September 30, 2008 and 2007, respectively. Net cash outflows from investment activity totaled $12.1 million and $33.6 million for the nine months ended September 30, 2008 and 2007, respectively. Cash flows from financing activities were $2.0 million and $148,000 for the nine months ended September 30, 2008 and 2007, respectively. This resulted in a net increase in cash and cash equivalents of $24.5 million for the nine months ended September 30, 2008. 
As of September 30, 2008, Citizens held $45.7 million in cash and cash equivilants, compared to $21.1 million at December 31, 2007. 
On October 27, 2008, the Company completed its acquisition of Ozark National Life Insurance Company of Little Rock, Arkansas for $8.0 million in cash. Ozark National had assets of $18.5 million, capital and surplus of $1.8 million, and annual premiums and deposits of $4.0 million, as of the year ended December 31, 2007.