Stockholders' Equity and Restrictions

12 Months Ended

Dec. 31, 2021

Stockholders' Equity Note [Abstract]

Stockholders' Equity and Restrictions

STOCK

Our Restated and Amended Articles of Incorporation authorize the issuance of 127,000,000 shares, of which 100,000,000 shares shall be Class A common stock, 2,000,000 shares shall be Class B common stock, and 25,000,000 shall be preferred stock. The two authorized classes of common stock are equal in all respects, except (a) each share of Class A common stock is entitled to receive twice the cash dividends paid on a per share basis to the Class B common stock, if any; and (b) the holders of the Class B common stock have the exclusive right to elect a simple majority of the Board of Directors of Citizens. In April 2021, we repurchased all of the outstanding Class B

common stock and it is now classified as treasury stock. As a result, all of the directors are elected by the holders of the Class A common stock. Citizens has never issued any preferred stock.

A summary of the change in number of shares of Class A and Class B common stock and treasury stock issued is as follows:

(In thousands)	Common Stock		Treasury
	Class A	Class B	Stock
Balance at December 31, 2018	52,216	1,002	(3,136)
Change	149	—	—
Balance at December 31, 2019	52,365	1,002	(3,136)
Change	289	—	—
Balance at December 31, 2020	52,654	1,002	(3,136)
Change	516	—	(1,002)
Balance at December 31, 2021	53,170	1,002	(4,138)

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share.

Years ended December 31, (In thousands, except per share amounts)	2021		2020	2019
Net income (loss)	$	36,787	(10,988)	(1,370)
Numerator for Basic Earnings Per Share:
Net income (loss) allocated to Class A common stock	$	36,673	(10,878)	(1,356)
Net income (loss) allocated to Class B common stock	114		(110)	(14)
Net income (loss)	$	36,787	(10,988)	(1,370)
Denominator for Basic Earnings Per Share:
Weighted average shares of Class A outstanding	49,664		49,400	49,214
Weighted average shares of Class B outstanding	308		1,002	1,002
Total weighted average shares outstanding	49,972		50,402	50,216
Basic earnings (loss) per share of Class A common stock	$	0.74	(0.22)	(0.03)
Basic earnings (loss) per share of Class B common stock	0.37		(0.11)	(0.01)
Numerator for Diluted Earnings Per Share:
Net income (loss) allocated to Class A common stock	$	36,675	(10,878)	(1,356)
Net income (loss) allocated to Class B common stock	112		(110)	(14)
Net income (loss)	$	36,787	(10,988)	(1,370)
Denominator for Diluted Earnings Per Share:
Weighted average shares of Class A outstanding	50,337		49,938	49,347
Weighted average shares of Class B outstanding	308		1,002	1,002
Total weighted average shares outstanding	50,645		50,940	50,349
Diluted earnings (loss) per share of Class A common stock	$	0.73	(0.22)	(0.03)
Diluted earnings (loss) per share of Class B common stock	0.36		(0.11)	(0.01)

STATUTORY CAPITAL AND SURPLUS

The table below shows the combined total of all of our domestic insurance subsidiaries' statutory capital and surplus and statutory net income (loss) for life insurance operations and property insurance operations, although these amounts are not all available as dividends to Citizens because only CICA is directly owned by Citizens.  All other domestic subsidiaries are owned by CICA.

As of December 31, (In thousands)	2021		2020
Combined statutory capital and surplus
Life insurance operations	$	43,138	39,633
Property insurance operations	5,298		4,810
Total combined statutory capital and surplus	$	48,436	44,443

Years ended December 31, (In thousands)	2021		2020	2019
Combined statutory net income (loss)
Life insurance operations	$	5,280	9,458	(1,200)
Property insurance operations	(1,512)		(1,985)	(451)
Total combined statutory net income (loss)	$	3,768	7,473	(1,651)

Generally, the net assets of the domestic insurance subsidiaries available for transfer to their immediate parent are limited to the lesser of the subsidiary's net gain from operations during the preceding year or 10% of the subsidiary's net statutory surplus as of the end of the preceding year as determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities.  Under these practices, total surplus at December 31, 2021 was $40.0 million and net gain from operations was $0.2 million for CICA for the year ended December 31, 2021.  Based upon these amounts, a $0.2 million dividend could be paid to the Company without prior regulatory approval in 2022.  Payments of dividends in excess of such amounts would generally require approval by regulatory authorities.

CICA, CNLIC, SPLIC, MGLIC and SPFIC have calculated their risk-based capital ("RBC") in accordance with the National Association of Insurance Commissioners' ("NAIC") Model Rule and the RBC rules as adopted by their respective states of domicile. As part of the novation transaction with CICA International, the Company agreed to infuse capital into CICA as required by the Colorado Department of Insurance to maintain CICA's RBC above 350% in any future calendar year-end periods. All insurance subsidiaries exceeded RBC minimum levels at December 31, 2021.

Under the Bermuda Insurance Act 1978, an insurer is prohibited from declaring or paying a dividend if it is in breach of its Enhanced Capital Requirement (“ECR”) or Minimum Margin of Solvency (“MMS”) or if the declaration or payment of such dividend would cause such a breach. Where an insurer fails to meet its MMS on the last day of any financial year, it is prohibited from declaring or paying any dividends during the next financial year without the approval of the Bermuda Monetary Authority (the “BMA” or the "Authority"). Insurers are also prohibited from paying a dividend in an amount exceeding 25% of the prior year’s total statutory capital and surplus, unless at least two members of the board of directors and its principal representative sign and submit to the BMA an affidavit attesting that a dividend in excess of this amount would not cause such insurer to fail to meet its relevant margins. In certain instances, the insurer would also be required to provide prior notice to the BMA in advance of the payment of dividends.

In the event that such an affidavit is submitted to the BMA in accordance with the Bermuda Insurance Act, and further subject to CICA International meeting its MMS and ECR requirements, CICA International would be permitted to distribute a dividend not exceeding 25% of its prior year's total statutory capital and surplus. Distributions in excess of this amount require the approval of the BMA. Further, CICA International must obtain the

BMA’s prior approval before reducing its total statutory capital as shown in its previous financial year statutory balance sheet by 15% or more. CICA International is also prohibited from declaring or paying any dividends unless the value of its long-term business assets exceeds its long-term business liabilities, as certified by its approved actuary, by the amount of the dividend and at least the MMS. These restrictions on declaring or paying dividends and distributions under the Bermuda Insurance Act of 1978 are in addition to those under Bermuda’s Companies Act 1981 which apply to all Bermuda companies. Based upon these rules, CICA International can pay a dividend of $4.5 million without prior regulatory approval in 2022. However, the BMA has requested that CICA International notify the Authority in advance of any potential dividend payments and any intercompany related payments or transactions.

As of December 31, (In thousands)	2021		2020
CICA International capital and surplus	$	141,931	158,447

Years ended December 31, (In thousands)	2021		2020	2019
CICA International net income (loss)	$	14,029	9,000	7,649

The BMA established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that mandate that a Bermuda-domiciled subsidiary’s ECR be calculated by either: (a) Bermuda Solvency Capital Requirement ("BSCR"); or (b) an internal capital model that the BMA has approved for use for this purpose. CICA International uses the BSCR in calculating its solvency requirements. The Economic Balance Sheet ("EBS") framework is embedded as part of the BSCR and forms the basis of its ECR. CICA International held capital in excess of the BSCR requirements at December 31, 2021. At the request of the BMA, on April 15, 2021, Citizens and CICA International entered into a Keep Well Agreement. The Keep Well Agreement requires Citizens to contribute up to $10 million in capital to CICA International as necessary to ensure that CICA International has a minimum capital level of 120% (equal to the TCL). Since CICA International's capital level currently exceeds 120%, Citizens is not currently required to make a capital contribution.

On June 10, 2016, the NAIC Executive Committee and Plenary voted to adopt a recommendation for January 1, 2017 as the operative date for the implementation of Principles-Based Reserves (“PBR”) as a national standard for life insurance products. Although this NAIC standard does not change the reserving requirements under U.S. GAAP, it can be significant for many life insurers. PBR replaces the current formulaic approach to determining policy reserves with an approach that more closely reflects the risks of highly complex products. Companies will be expected to develop “right-sized” reserves that better align with their specific product features, their observed actuarial experience, and their overall risk management procedures. PBR was required effective January 1, 2020. The Company files annual requests for PBR exemption with the various state Departments of Insurance since all of our domestic insurance subsidiaries met the small company exemption outlined in the NAIC Valuation Manual, VM-20, for principle-based reserving.