CITIZENS, INC. (CIA)

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions including those factors discussed in the "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2025, which is incorporated herein by reference.

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q, as well as in conjunction with MD&A and the consolidated financial statements and notes thereto that are included in our Form 10-K. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

The U.S. Securities and Exchange Commission ("SEC") maintains a website at www.sec.gov that contains reports, proxy statements, and other information regarding issuers, including the Company, that file electronically with the SEC. Our own website, www.citizensinc.com, provides free access to the Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings made by our executive officers and directors, and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These materials are made available on our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC.  Information contained on, or accessible through, our website is not incorporated by reference into, and should not be considered part of, this Form 10-Q.

OBJECTIVE OF OUR MANAGEMENT'S DISCUSSION AND ANALYSIS

We refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations as our “MD&A”. The objective of our MD&A is to provide investors with information in order to assess the material changes in our financial condition from December 31, 2025 to June 30, 2026 and the material changes in our results of operations for the three and six months ended June 30, 2026 as compared to the same periods in 2025. We also discuss in the MD&A any trends that we believe may materially affect our future operations or financial condition.

OVERVIEW

For over 55 years, Citizens has been fulfilling the needs of our policyholders and their families by providing insurance products that offer both living and death benefits. We conduct insurance related operations through our insurance subsidiaries, which provide benefits to policyholders globally. We specialize in offering primarily individual whole life insurance, endowment products and final expense insurance in niche markets where we believe we can optimize our competitive position.

As an insurance provider, we collect premiums on an ongoing basis from our policyholders and invest the majority of the premiums to pay future benefits, including claims, surrenders and policyholder dividends. Accordingly, the Company derives its revenues principally from: (1) life insurance premiums earned for insurance coverages provided to insureds in our two operating segments – International Insurance and Domestic Insurance; and (2) net investment income. In addition to reserving for and paying insurance benefits to our policyholders, our expenses consist primarily of the costs of selling our insurance products (e.g., commissions, underwriting, marketing expenses), operating expenses and income taxes.

We operate in two segments - International Insurance and Domestic Insurance. Our International Insurance segment operates through CICA Life, A.I., a Puerto Rican insurer, referred to as "CICA International". Our Domestic

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Insurance segment operates through our subsidiaries CICA Life Insurance Company of America ("CLOA"), Security Plan Life Insurance Company ("SPLIC") and Magnolia Guaranty Life Insurance Company ("MGLIC").

EVENTS THAT IMPACTED OUR BUSINESS

From time-to-time, certain events may affect our business in ways that cause current or future results to differ from past results. See (1) the factors described in Part 1. Item 1A. Risk Factors in our Annual Report on Form 10-K for the period ended December 31, 2025 ("2025 Form 10-K"); and (2) the events described in Part 1. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Events that Impacted Our Business" in the 2025 Form 10-K.

Venezuela Earthquakes May Impact Insurance Premiums and Claims

Venezuela represents one of our most significant markets in the International Insurance segment. The earthquakes that occurred in Venezuela in June 2026 may adversely affect this segment by hindering policyholders' capacity to submit timely premium payments and driving higher-than-expected claims activity. Due to the magnitude and breadth of the disaster, the full count of impacted policyholders will likely emerge gradually, as missed payments and submitted claims are tracked and confirmed. As an immediate measure, a $0.5 million death claim liability has been recorded. While current data does not point to a material effect on our operations, we will maintain diligent oversight and update our projections as new information becomes available.

FINANCIAL HIGHLIGHTS

Summary

Q2: Net loss before federal income tax in the three months ended June 30, 2026 of $0.5 million decreased from income before federal income tax of $6.9 million in the same prior year period. The primary factors that drove this change were:

•$3.9 million decline in investment related gains and losses primarily related to the change in fair market value for certain of our limited partnership investments that we have not sold;

•$1.7 million increase in insurance benefits paid or provided due to:

◦$6.5 million decrease in claims and surrenders benefits due to the expected contractual decreases of matured endowments; more than offset by; and

◦$7.7 million increase in future policy benefit reserves primarily due to the increased business in our Domestic Insurance segment and the large amount of reserves released in the prior year period as we paid out matured endowment and released the corresponding reserves.

YTD: Net income before federal income tax in the six months ended June 30, 2026 decreased to $1.8 million from $5.1 million in the same year period. The factors that drove this decrease were:

•$1.1 million increase in insurance benefits paid or provided due to:

◦$6.9 million decrease in claims and surrenders as described above; more than offset by

◦$6.7 million increase in future policy benefit reserves as described above; and

•$1.3 million increase in general operating expenses to support our growth initiatives.

Financial Condition at June 30, 2026

•Total assets of $1.8 billion

•Total direct insurance in force of $5.5 billion

•Total investments of $1.4 billion; fixed maturity securities comprised 89% of total investments

•No debt

•Book value per share of Class A common stock of $4.64

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•Adjusted book value per share of Class A common stock of $6.441

•Diluted earnings per share of Class A common stock for the six months ended of $0.04

The Factors that Drive our Operating Results

We see the following as the primary factors that drive our operating results.

•Sales of our products and the premiums we receive from these sales

•Investments and the income that they generate

•Claims and surrenders

•Operating expenses

•Actuarial assumptions

Sales of our Products. We believe sales statistics are meaningful to gain an understanding of, among other things, the attractiveness of our products, how expansion of our distribution channels affects our revenue, customer retention and the performance of our business from period-to-period. Throughout the MD&A, we describe the actions and initiatives we are taking to increase sales and improve retention, sales performance in each period and as compared to prior year periods, and how we view trends with respect to sales and retention.

One sales factor that is key to our profitability is product mix. We offer a competitive product mix designed to meet the needs of our specific customer demographics and actively manage new product margins and in-force profitability. Product mix can have an impact on profitability; when we sell a higher volume of lower-margin products, we may receive more premiums but may not be as profitable as in periods when we sell a greater percentage of higher-margin products. Our product mix has been trending towards sales of our newer whole life products, which have a smaller margin than sales of our international endowment products. We expect this trend in our International Insurance segment to continue due to the anticipated volumes of endowment maturities being replaced by higher volumes of whole life products.

Customer retention, or persistency, is another key factor influencing both revenue and profitability. Persistency refers to the extent to which policyholders keep their insurance policies in force over time rather than allowing them to lapse, surrender, or terminate. Persistency is a key measure because we spend a significant amount of money acquiring a policyholder upfront (e.g., commissions, underwriting, marketing) and expect to recover those costs over many years. A highly persistent block of business is one where policyholders continue paying premiums and maintaining coverage for many years. Unfavorable persistency is characterized by higher than expected policy lapses, surrenders, or terminations, which can negatively impact profitability by reducing the in-force block of business generating premiums, coupled with an increase in reserves resulting from less projected future premiums, as well as an acceleration in the recognition of deferred acquisition costs. We actively monitor persistency trends across our product lines and customer segments, and where unfavorable persistency is observed, we may take targeted retention actions; however, there can be no assurance that such efforts will fully offset the financial impact of higher than expected policy terminations.

Premium Revenues. Premium revenues consist of all money deposited by customers into new and existing insurance policies. We view these premiums in two categories - first year premiums are premiums received within the first 12 months of a policy's issuance and any premiums received thereafter are renewal premiums.

Throughout the MD&A, we refer to "direct" premiums as all premiums received and "net" or "total" premiums as all premiums received less premiums ceded to our reinsurers. Direct premium revenue increased 4% in the three and six months ended June 30, 2026 to $48.1 million and $92.0 million, respectively

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.

OVERVIEW

For over 55 years, Citizens has been fulfilling the needs of our policyholders and their families by providing insurance products that offer both living and death benefits. We conduct insurance related operations through our insurance subsidiaries, which provide benefits to policyholders globally. We specialize in offering primarily individual whole life insurance, endowment products and final expense insurance in niche markets where we believe we can optimize our competitive position.

As an insurance provider, we collect premiums on an ongoing basis from our policyholders and invest the majority of the premiums to pay future benefits, including claims, surrenders and policyholder dividends. Accordingly, the Company derives its revenues principally from: (1) life insurance premiums earned for insurance coverages provided to insureds in our two operating segments – International Insurance and Domestic Insurance; and (2) net investment income. In addition to paying and reserving for insurance benefits that we pay to our policyholders, our expenses consist primarily of the costs of selling our insurance products (e.g., commissions, underwriting, marketing expenses), operating expenses and income taxes.

Objective of our Management's Discussion and Analysis

We refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations as our “MD&A”. The objective of our MD&A is to provide investors with a succinct analysis of the Company's financial performance from management's perspective. We start by discussing how industry developments and economic circumstances in general (e.g., interest rate environment) affected or could affect our financial performance and then discuss how certain events specifically impacted our business. We summarize our financial highlights and discuss the factors that we believe drive our operating results. We then discuss in more detail our results of operations for the year ended December 31, 2025 so an investor or potential investor understands the various line items of our profit and loss statements from management’s perspective. Since our investments are one of two principal sources of our revenues, we describe them in detail. Finally, we discuss our capital resources and liquidity so investors better understand how those resources are utilized and how we are able to meet our cash needs.

Throughout the MD&A, we describe how we view the Company and which matters we believe are reasonably likely to affect future operations. We describe our priorities for the business in Part I. Item 1. Business - Strategic Initiatives and in the MD&A, we describe how we performed on those initiatives and any known trends or uncertainties that might impact our ability to achieve our goals.

ECONOMIC AND INSURANCE INDUSTRY DEVELOPMENTS

Life insurers continue to operate in an environment marked by economic volatility, shifting financial market conditions, evolving regulatory expectations, geopolitical uncertainty and rapid technological change. These developments have influenced profitability, product demand, capital requirements, and consumer behavior across the industry, including our Company.

Interest Rate Environment, Market Volatility and Inflation. The material uptick in interest rates over the past few years has generally benefited life insurers by improving reinvestment yields and net investment income. However, these benefits have been partially offset by unrealized losses in fixed-income portfolios as market values declined during the rate‑rising cycle, a trend observable across the industry. Life insurers remain sensitive to interest‑rate movements given the asset‑intensive nature of the business and long‑duration liabilities.

Inflation has also affected insurers by reducing customer discretionary income and potentially increasing lapse rates, especially among lower- and middle-income policyholders. Additionally, inflation can increase operating

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expenses and claims‑related costs. Prolonged inflationary pressure may continue to affect both consumer purchasing behavior and overall insurer expense structures.

Prior to 2022, the life insurance industry operated for more than a decade in a sustained low interest rate environment, which constrained investment yields and compressed spreads. As older, higher-yielding assets matured or were called, insurers were required to reinvest at lower rates, reducing margins on products with guaranteed minimum interest rates. These dynamics contributed to reserve strengthening, loss recognition events, and faster amortization of deferred acquisition costs for certain products across the sector. Although the rate environment has shifted, legacy portfolios and in‑force blocks continue to be influenced by these earlier conditions.

Reinsurance Market Dynamics. Reinsurance markets have tightened due to factors such as increased cybersecurity risks, significant weather-related losses, pandemic losses, and volatility in asset valuations. These pressures have led to a decline in the availability of reinsurance, tighter terms (such as, for example, pandemic exclusions) and/or increased reinsurance prices. Continued market tightening could increase our cost of reinsurance or limit availability, which may affect our risk transfer strategies and capital management.

Technology, Innovation and Digitization. Technological advancement continues to reshape the life insurance sector. Insurers are investing in digital distribution capabilities, automated underwriting, advanced analytics, and generative artificial intelligence to improve customer experience, enhance agent productivity, and streamline operations. These innovations are transforming how products are designed, marketed, and serviced. While technology presents opportunities to increase efficiency and support profitable growth, it also introduces industry‑wide challenges related to cybersecurity, data governance, and compliance with evolving regulatory frameworks. These technological developments also require continuous investment in digital platforms, system modernization, and data capabilities. Failure to invest adequately could impair our ability to compete effectively, support our distribution partners, meet policyholder expectations, or comply with evolving cybersecurity and data‑governance standards. Ongoing investment is therefore an important component of our long‑term strategy.

RE-SEGMENTATION OF REPORTABLE SEGMENTS

Effective December 31, 2025, the Company reorganized its insurance reporting structure, shifting from Life Insurance and Home Service Insurance segments to Domestic Insurance and International Insurance segments.

The Company’s reportable segments are based on the geographic location of operations and the nature of products and services offered. Management believes this structure provides a more meaningful view of the business and better reflects the way performance is assessed internally. Historically, our operations were organized into (i) Life Insurance, which included both U.S. domestic life insurance products and our international life operations, and (ii) Home Services Insurance, which consisted primarily of our Louisiana‑based, face‑to‑face home services business. Management has implemented several strategic initiatives over the past few years aimed at enhancing profitability and operational efficiency. These efforts, combined with improved sales performance, have strengthened the Company’s overall business. Given these developments, management concluded that the prior segmentation no longer reflected how the Chief Operating Decision Maker ("CODM") reviews performance, allocates resources, and assesses the strategic direction of the business. Accordingly, we have combined our former domestic life and home services operations into a single Domestic Insurance segment and report all non‑U.S. operations in the International Insurance segment.

Recast of Prior‑Period Financial Information

In accordance with the segment reporting guidance under ASC 280, we have recast prior‑period segment information within this report to conform to the new segment structure. These changes affect only how we present results by segment and had no impact on our previously reported consolidated financial statements, including net income, earnings per share, total assets, or cash flows.

Recast segment results for prior periods are included within this Form 10‑K to provide comparability and to assist readers in understanding trends in our operating performance under the revised structure.

Impact on MD&A

The MD&A reflects our results for fiscal year 2025 and all comparative periods under the Domestic Insurance and International Insurance segment structure. Management believes this realignment enhances transparency and more

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accurately reflects the manner in which we operate the business, evaluate performance, and execute our strategic priorities.

EVENTS THAT IMPACTED OUR BUSINESS

From time to time, certain events may affect our business in ways that cause current or future results to differ from past results. In addition to factors described in Part I. Item 1A. Risk Factors, the following events impacted our results of operations or financial condition.

Coinsurance Agreement with RGA Reinsurance Company

In the second quarter of 2024, CLOA entered into an automatic coinsurance reinsurance agreement with RGA Reinsurance Company ("RGA") in order to provide more capacity for growth in our Domestic Insurance segment. Under this agreement (the "RGA Agreement"), CLOA elected for RGA to reinsure 50% of its newly written final expense business, which means we cede 50% of direct premiums we receive for our CLOA final expense products that were issued since the date we entered into the RGA Agreement, to RGA. In return, RGA pays 50% of death benefits paid for these products and also pays CLOA an expense allowance to cover its share of expenses such as commissions.

Investment Related Losses due to BlackRock write-down

Investment related gains and losses derive principally from our investments in equity securities and include unrealized gains and losses from market price changes in these equities during the period. Investment related gains and losses can cause significant fluctuations from period to period and while they are included in our operating revenue, we do not believe they are indicative of our operating results.

As discussed in our 2024 Form 10-K, in December 2024, BlackRock, Inc. ("BlackRock") announced a substantial write-down of its Global Renewable Power Fund III, a $4.8 billion flagship renewable fund, due to the collapse of two key investments: Northvolt and SolarZero. In 2025, BlackRock continued to review the valuation of this fund and reduced the net asset value further. We had invested in this fund as part of our environmental, social and governance ("ESG") initiatives and although we did not sell this investment, we reported an investment related loss on this investment of $3.3 million in the fourth quarter of 2024 and an additional $5.2 million in 2025. This sector has experienced market headwinds primarily driven by rising interest rates, supply chain disruption and less certain policy environment. In 2025, the write-down of our BlackRock investment was offset by positive fair value changes in some of our other limited partnership type investments.

Legal Proceedings

See Part IV. Item 15. Note 8. Commitments and Contin

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