10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2009

or

o 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	(I.R.S. Employer
incorporation or organization)	Identification No.)
400 East Anderson Lane, Austin, Texas	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. þ Yes o 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). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No

As of November 6, 2009, the Registrant had 48,687,093 shares of Class A common stock, no par value, outstanding and 1,001,714 shares of Class B common stock outstanding.

TABLE OF CONTENTS

	Page
	Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Position, September 30, 2009, (Unaudited) and December 31, 2008		2
Consolidated Statements of Operations, Three Months Ended September 30, 2009 and 2008 (Unaudited)		4
Consolidated Statements of Operations, Nine Months Ended September 30, 2009 and 2008 (Unaudited)		5
Consolidated Statements of Cash Flows, Nine Months Ended September 30, 2009 and 2008 (Unaudited)		6
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures about Market Risk		41
Item 4. Controls and Procedures		42
Part II. Other Information
Item 1. Legal Proceedings		43
Item 1A. Risk Factors		44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 3. Defaults Upon Senior Securities		44
Item 4. Submission of Matters to a Vote of Security Holders		45
Item 5. Other Information		45
Item 6. Exhibits		45
Exhibit 10.8
Exhibit 10.9
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

1

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Financial Position

(In thousands)

	September 30,		December 31,
Assets	2009		2008
	(Unaudited)
Investments:
Fixed maturities available-for-sale, at fair value (cost: $335,817 and $494,034 in 2009 and 2008, respectively)	$	339,290		485,155
Fixed maturities held-to-maturity, at amortized cost (fair value:$200,496 in 2009)		202,197		—
Equity securities available-for-sale, at fair value (cost: $42,414 and $42,908 in 2009 and 2008, respectively)		52,894		43,000
Mortgage loans on real estate		1,462		339
Policy loans		31,860		28,955
Real estate held for sale		3,007		4,156
Real estate held for investment (less $352 and $283 accumulated depreciation in 2009 and 2008, respectively)		6,178		4,717
Other long-term investments		74		680
Short-term investments		2,556		2,250
Total investments		639,518		569,252
Cash and cash equivalents		77,916		63,792
Accrued investment income		7,037		7,423
Reinsurance recoverable		12,059		13,241
Deferred policy acquisition costs		113,656		109,114
Cost of customer relationships acquired		35,385		33,805
Goodwill		16,809		15,687
Other intangible assets		1,088		1,073
Federal income tax receivable		—		2,090
Property and equipment, net		6,151		6,466
Due premiums, net (less $1,493 and $2,217 allowance for doubtful accounts in 2009 and 2008, respectively)		8,152		8,958
Prepaid expenses		1,079		454
Other assets		970		921
Total assets	$	919,820		832,276

(Continued)

See accompanying notes to consolidated financial statements.

2

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Financial Position, Continued
(In thousands, except share amounts)

	September 30,			December 31,
Liabilities and Stockholders’ Equity	2009			2008
	(Unaudited)
Liabilities:
Future policy benefit reserves:
Life insurance	$	580,013			547,621
Annuities		36,585			34,025
Accident and health		6,734			7,442
Dividend accumulations		5,550			4,795
Premiums paid in advance		19,571			18,566
Policy claims payable		9,936			9,318
Other policyholders’ funds		7,974			7,929
Total policy liabilities		666,363			629,696
Commissions payable		1,893			2,350
Federal income tax payable		727			—
Deferred Federal and state income tax		7,060			3,951
Payable for securities in process of settlement		13,793			—
Warrants outstanding		1,892			4,973
Other liabilities		12,637			12,052
Total liabilities		704,365			653,022
Commitments and contingencies (Notes 8 and 10)
Cumulative convertible preferred stock — Series A (Series A-1 - $1,000 stated value per share, 6,250 shares authorized, issued and outstanding in 2008; Series A-2 - $935 stated value per share, 5,000 shares authorized, 4,014 issued and outstanding in 2008)		—			7,713
Stockholders’ Equity:
Common stock:
Class A, no par value, 100,000,000 shares authorized, 51,822,831 shares issued in 2009 and 48,781,753 shares issued in 2008, including shares in treasury of 3,135,738 in 2009 and 2008		256,703			240,511
Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2009 and 2008		3,184			3,184
Retained deficit		(46,091	)		(55,432	)
Accumulated other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities, net of tax		12,670			(5,711	)
		226,466			182,552
Treasury stock, at cost		(11,011	)		(11,011	)
Total stockholders’ equity		215,455			171,541
Total liabilities and stockholders’ equity	$	919,820			832,276

See accompanying notes to consolidated financial statements.

3

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Operations
Three Months Ended September 30,
(In thousands, except per share amounts)
(Unaudited)

	2009			2008
Revenues:
Premiums:
Life insurance	$	34,589			32,837
Accident and health insurance		371			384
Property insurance		1,192			820
Net investment income		7,413			7,543
Realized gains (losses), net		1,006			(226	)
Increase in fair value of warrants		—			(1,483	)
Other income		273			288
Total revenues		44,844			40,163
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		14,494			13,855
Increase in future policy benefit reserves		10,305			10,214
Policyholders’ dividends		1,827			1,636
Total insurance benefits paid or provided		26,626			25,705
Commissions		8,435			8,819
Other underwriting, acquisition and insurance expenses		6,772			7,312
Capitalization of deferred policy acquisition costs		(5,306	)		(5,712	)
Amortization of deferred policy acquisition costs		4,303			3,861
Amortization of cost of customer relationships acquired and other intangibles		946			676
Total benefits and expenses		41,776			40,661
Income (loss) before Federal income tax		3,068			(498	)
Federal income tax expense		820			316
Net income (loss)	$	2,248			(814	)
Net income (loss) applicable to common stockholders	$	2,091			(1,604	)
Per Share Amounts:
Basic and diluted earnings (loss) per share of Class A common stock	$	0.04			(0.04	)
Basic and diluted earnings (loss) per share of Class B common stock	$	0.02			(0.02	)

See accompanying notes to consolidated financial statements.

4

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Operations
Nine Months Ended September 30,
(In thousands, except per share amounts)
(Unaudited)

	2009			2008
Revenues:
Premiums:
Life insurance	$	101,858			97,178
Accident and health insurance		1,135			1,178
Property insurance		3,501			3,559
Net investment income		21,733			22,487
Realized gains (losses), net		2,827			(210	)
Decrease (increase) in fair value of warrants		3,081			(1,674	)
Other income		796			852
Total revenues		134,931			123,370
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		44,254			41,663
Increase in future policy benefit reserves		28,021			24,944
Policyholders’ dividends		4,742			4,590
Total insurance benefits paid or provided		77,017			71,197
Commissions		25,462			25,906
Other underwriting, acquisition and insurance expenses		21,889			21,243
Capitalization of deferred policy acquisition costs		(16,257	)		(16,876	)
Amortization of deferred policy acquisition costs		11,715			11,529
Amortization of cost of customer relationships acquired and other intangibles		2,630			2,155
Total benefits and expenses		122,456			115,154
Income before Federal income tax		12,475			8,216
Federal income tax expense		3,134			3,303
Net income	$	9,341			4,913
Net income applicable to common stockholders	$	6,836			3,112
Per Share Amounts:
Basic earnings per share of Class A common stock	$	0.14			0.07
Basic earnings per share of Class B common stock	$	0.07			0.04
Diluted earnings per share of Class A common stock	$	0.09			0.07
Diluted earnings per share of Class B common stock	$	0.04			0.04

See accompanying notes to consolidated financial statements.

5

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
Nine Months Ended September 30,
(In thousands)
(Unaudited)

	2009			2008
Cash flows from operating activities:
Net income	$	9,341			4,913
Adjustments to reconcile net income to net cash provided by operating activities:
Realized (gains) losses on sale of investments and other assets		(2,827	)		210
Net deferred policy acquisition costs		(4,542	)		(5,347	)
Amortization of cost of customer relationships acquired and other intangibles		2,630			2,155
(Decrease) increase in fair value of warrants		(3,081	)		1,674
Depreciation		908			827
Amortization of premiums and discounts on fixed maturities and short-term investments		1,466			216
Deferred Federal income tax (benefit) expense		(819	)		2,562
Change in:
Accrued investment income		434			887
Reinsurance recoverable		1,258			456
Due premiums and other receivables		856			591
Future policy benefit reserves		27,171			21,372
Other policyholders’ liabilities		1,187			7,911
Federal income tax receivable (payable)		2,827			(2,557	)
Commissions payable and other liabilities		58			95
Other, net		(583	)		(1,270	)
Net cash provided by operating activities		36,284			34,695
Cash flows from investing activities:
Purchase of fixed maturities, held-to-maturity		(202,286	)		—
Sale of fixed maturities, available-for-sale		72,148			237
Maturity and calls of fixed maturities, available-for-sale		276,058			130,800
Purchase of fixed maturities, available-for-sale		(174,931	)		(126,514	)
Sale of equity securities, available-for-sale		1,184			—
Purchase of equity securities, available-for-sale		(476	)		(23,984	)
Principal payments on mortgage loans		24			27
Mortgage loans funded		(170	)		(115	)
Increase in policy loans		(2,905	)		(1,944	)
Sale of other long-term investments and property and equipment		406			178
Purchase of other long-term investments and property and equipment		(2,172	)		(868	)
Maturity of short-term investments		2,250			18,000
Purchase of short-term investments		(2,604	)		(7,923	)
Cash acquired in acquisition		9,770			—
Net cash used in investing activities		(23,704	)		(12,106	)

(Continued)

See accompanying notes to consolidated financial statements.

6

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued
Nine Months Ended September 30,
(In thousands)
(Unaudited)

	2009			2008
Cash flows from financing activities:
Warrants exercised	$	69			55
Series A-1 Preferred Stock capital contribution		—			1,125
Annuity deposits		3,990			1,862
Annuity withdrawals		(2,515	)		(1,084	)
Net cash provided by financing activities		1,544			1,958
Net increase in cash and cash equivalents		14,124			24,547
Cash and cash equivalents at beginning of period		63,792			21,123
Cash and cash equivalents at end of period	$	77,916			45,670
Supplemental disclosures of operating activities:
Cash paid during the period for income taxes	$	1,125			3,298

Supplemental Disclosure of Non-Cash Investing Activities:

On February 27, 2009, the Company acquired Integrity Capital Corporation (“ICC”) for 1,294,000 shares of Class A common stock with a fair value of $8.4 million. CICA Life Insurance Company of America held a 13% interest in ICC prior to the acquisition with a carrying value of $551,000, making the total non-cash acquisition price approximately $9.0 million.

In the third quarter of 2009, the Company sold two parcels of real estate and made mortgage loans totaling $977,000.

Supplemental Disclosures of Non-Cash Financing Activities:

Dividends on the Company’s Series A-1 Convertible Preferred Stock, issued in 2004, and Series A-2 Convertible Preferred Stock, issued in 2005, were paid by the Company through the issuance of Class A common stock to the preferred shareholders in the amounts of $216,000 and $514,000 for the first nine months of 2009 and 2008, respectively. Accretion of deferred issuance costs and discounts on the Convertible Preferred Stock recorded as a deduction to Class A common stock during the first nine months of 2009 and 2008 was $2.3 million and $1.3 million, respectively.

See accompanying notes to consolidated financial statements.

7

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)

(1) Financial Statements

The interim consolidated financial statements include the accounts and operations of Citizens, Inc. (“Citizens”), incorporated in the state of Colorado on November 8, 1977, and its wholly-owned subsidiaries, CICA Life Insurance Company of America (“CICA”), Computing Technology, Inc. (“CTI”), Funeral Homes of America, Inc. (“FHA”), Insurance Investors, Inc. (“III”), Citizens National Life Insurance Company (“CNLIC”), Integrity Capital Corporation (“ICC”), Integrity Capital Insurance Company (“ICIC”), Ozark National Life Insurance Company (“ONLIC”), Security Plan Life Insurance Company (“SPLIC”), and Security Plan Fire Insurance Company (“SPFIC”). Citizens and its consolidated subsidiaries are collectively referred to as “the Company,” “we,” “us,” or “our.”

The consolidated statements of financial position for September 30, 2009, the consolidated statements of operations for the three and nine-month periods ended September 30, 2009 and 2008, and the consolidated statements of cash flows for the nine-month period then ended 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 September 30, 2009, and for comparative periods, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States of America (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the operating results for the full year.

The Company completed its acquisition of ICC in exchange for 1,294,000 shares of its Class A common stock in the first quarter of 2009. ICC is the parent of ICIC, an Indiana life insurance company. The transaction was valued at $9.0 million on the closing date of February 27, 2009.

During the third quarter of 2009, the Company discovered an overstatement of ICIC’s policyholder dividend liability that existed at the February 27, 2009 acquisition date in the amount of $328,000. The correction of this error, net of tax of $115,000, was recognized as a reduction of goodwill of $213,000.

A purchase price accounting adjustment was recorded as of June 30, 2009 to increase policy reserves by $307,000 and increase cost of insurance acquired (“COIA”) by $326,000, due to the discovery of additional policy reserve items during the conversion of ONLIC, which were missing at acquisition The difference of $19,000 was recorded as a reduction of goodwill. ONLIC was acquired during the fourth quarter of 2008 and was fully converted to the Company’s internal system in the third quarter of 2009.

Certain amounts presented in prior years have been reclassified to conform to the current presentation.

(2) Accounting Pronouncements

Accounting Standards Recently Adopted

Effective July 1, 2009, the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became the single official source of authoritative, nongovernmental generally accepted accounting principles. The historical U.S. GAAP hierarchy was eliminated and the ASC became the only level of authoritative U.S. GAAP, other than guidance issued by the Securities and Exchange Commission. Our accounting policies were not affected by the conversion to ASC. However, references to specific accounting standards in the footnotes to our consolidated financial statements have been changed to refer to the appropriate section of ASC.

8

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

On June 30, 2009, in our consolidated financial statements, we adopted the provisions of a new accounting standard relating to subsequent events, which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The standard defines two types of subsequent events: recognized subsequent events, which provide additional evidence about conditions that existed at the balance sheet date, and nonrecognized subsequent events, which provide evidence about conditions that did not exist as of the balance sheet date, but arose after that date. Recognized subsequent events are required to be recognized in the financial statements, and certain nonrecognized subsequent events are required to be disclosed. The Standard also requires the disclosure of the date through which an entity has evaluated subsequent events. (See Note 12 for disclosure of subsequent events.)

On June 30, 2009, we adopted an update to accounting standards for disclosures about the fair value of financial instruments, which requires publicly-traded companies to provide disclosures on the fair value of financial instruments in interim financial statements.

On January 1, 2009, we adopted an update to existing accounting standards for business combinations. The update, which retains the underlying concepts of the original standard in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, changes the method of applying the acquisition method in a number of ways. Acquisition costs are no longer considered part of the fair value of an acquisition and will generally be expensed as incurred, noncontrolling interests are valued at fair value at the acquisition date, in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. In April 2009, the FASB issued a further update in relation to accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies, which amends the previous guidance to require contingent assets acquired and liabilities assumed in a business combination to be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the measurement period. If fair value cannot be reasonably estimated during the measurement period, the contingent asset or liability would be recognized in accordance with standards and guidance on accounting for contingencies and reasonable estimation of the amount of a loss. Further, this update eliminated the specific subsequent accounting guidance for contingent assets and liabilities, without significantly revising the original guidance. However, contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination would still be initially and subsequently measured at fair value. These updates are effective for all business acquisitions occurring on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted the provisions of these updates for business combinations with an acquisition date on or after January 1, 2009 and these adoptions did not have a material effect on the Company’s consolidated financial statements. There were no noncontrolling interests in the ICC acquisition.

On January 1, 2009, we adopted without material impact on our consolidated financial statements the provisions of the fair value measurement accounting standard related to nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis, which include those measured at fair value in goodwill impairment testing, indefinite-lived intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets measured at fair value for impairment assessment, asset retirement obligations initially measured at fair value, and those initially measured at fair value in a business combination.

In April 2009, the FASB further updated the fair value measurement standard to provide additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This update re-emphasizes that, regardless of market conditions, the fair value measurement is an exit price concept as defined in the original standard. It clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or liability and provides additional clarification on estimating fair value when the market activity for an asset or liability has declined significantly. The scope of this update does not include assets and liabilities measured under Level 1 inputs. We adopted this update on June 30, 2009 prospectively to all fair value measurements as appropriate without material impact on our consolidated financial statements.

9

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

Accounting Standards Not Yet Adopted

In August 2009, the FASB further updated the fair value measurement guidance to clarify how an entity should measure liabilities at fair value. The update reaffirms fair value is based on an orderly transaction between market participants, even though liabilities are infrequently transferred due to contractual or other legal restrictions. However, identical liabilities traded in the active market should be used when available. When quoted prices are not available, the quoted price of the identical liability traded as an asset, quoted prices for similar liabilities or similar liabilities traded as an asset, or another valuation approach should be used. This update also clarifies that restrictions preventing the transfer of a liability should not be considered as a separate input or adjustment in the measurement of fair value. We adopted the provisions of this update for fair value measurements of liabilities effective October 1, 2009, and its adoption did not have a material impact on our consolidated financial statements.

(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, and has no reportable differences between segments and consolidated operations.

10

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

Below is a summary of the segment information for the three and nine month periods ended September 30, 2009 and 2008.

	Three Months Ended September 30, 2009
				Home			Other
	Life			Service			Non-Insurance
	Insurance			Insurance			Enterprises			Consolidated
	(In thousands)
Revenues:
Premiums	$	25,795			10,357			—			36,152
Net investment income		4,232			3,126			55			7,413
Realized gains, net		650			356			—			1,006
Other income		108			20			145			273
Total revenue		30,785			13,859			200			44,844
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		10,035			4,459			—			14,494
Increase in future policy benefit reserves		8,850			1,455			—			10,305
Policyholders’ dividends		1,809			18			—			1,827
Total insurance benefits paid or provided		20,694			5,932			—			26,626
Commissions		4,827			3,608			—			8,435
Other underwriting, acquisition and insurance expenses		2,563			3,588			621			6,772
Capitalization of deferred policy acquisition costs		(3,975	)		(1,331	)		—			(5,306	)
Amortization of deferred policy acquisition costs		3,757			546			—			4,303
Amortization of cost of customer relationships acquired and other intangibles		397			549			—			946
Total benefits and expenses		28,263			12,892			621			41,776
Income (loss) before Federal income tax	$	2,522			967			(421	)		3,068

11

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

	Nine Months Ended September 30, 2009
				Home			Other
	Life			Service			Non-Insurance
	Insurance			Insurance			Enterprises		Consolidated
	(In thousands)
Revenues:
Premiums	$	75,570			30,924			—		106,494
Net investment income		12,196			9,396			141		21,733
Realized gains, net		1,068			1,682			77		2,827
Decrease in fair value of warrants		—			—			3,081		3,081
Other income		267			84			445		796
Total revenue		89,101			42,086			3,744		134,931
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		30,259			13,995			—		44,254
Increase in future policy benefit reserves		24,258			3,763			—		28,021
Policyholders’ dividends		4,687			55			—		4,742
Total insurance benefits paid or provided		59,204			17,813			—		77,017
Commissions		14,531			10,931			—		25,462
Other underwriting, acquisition and insurance expenses		7,873			11,577			2,439		21,889
Capitalization of deferred policy acquisition costs		(12,227	)		(4,030	)		—		(16,257	)
Amortization of deferred policy acquisition costs		10,677			1,038			—		11,715
Amortization of cost of customer relationships acquired and other intangibles		1,105			1,525			—		2,630
Total benefits and expenses		81,163			38,854			2,439		122,456
Income before Federal income tax	$	7,938			3,232			1,305		12,475

12

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

	Three Months Ended September 30, 2008
				Home			Other
	Life			Service			Non-Insurance
	Insurance			Insurance			Enterprises			Consolidated
	(In thousands)
Revenues:
Premiums	$	24,634			9,407			—			34,041
Net investment income		4,309			3,072			162			7,543
Realized losses, net		(223	)		(3	)		—			(226	)
Increase in fair value of warrants		—			—			(1,483	)		(1,483	)
Other income		89			1			198			288
Total revenue		28,809			12,477			(1,123	)		40,163
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		8,644			5,211			—			13,855
Increase in future policy benefit reserves		8,335			1,879			—			10,214
Policyholders’ dividends		1,618			18			—			1,636
Total insurance benefits paid or provided		18,597			7,108			—			25,705
Commissions		5,206			3,613			—			8,819
Other underwriting, acquisition and insurance expenses		2,813			3,947			552			7,312
Capitalization of deferred policy acquisition costs		(4,526	)		(1,186	)		—			(5,712	)
Amortization of deferred policy acquisition costs		3,500			361			—			3,861
Amortization of cost of customer relationships acquired and other intangibles		209			467			—			676
Total benefits and expenses		25,799			14,310			552			40,661
Income (loss) before Federal income tax	$	3,010			(1,833	)		(1,675	)		(498	)

13

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

	Nine Months Ended September 30, 2008
				Home			Other
	Life			Service			Non-Insurance
	Insurance			Insurance			Enterprises			Consolidated
	(In thousands)
Revenues:
Premiums	$	72,584			29,331			—			101,915
Net investment income		12,519			9,255			713			22,487
Realized gains (losses), net		(220	)		(8	)		18			(210	)
Increase in fair value of warrants		—			—			(1,674	)		(1,674	)
Other income		245			12			595			852
Total revenue		85,128			38,590			(348	)		123,370
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		26,462			15,201			—			41,663
Increase in future policy benefit reserves		23,430			1,514			—			24,944
Policyholders’ dividends		4,533			57			—			4,590
Total insurance benefits paid or provided		54,425			16,772			—			71,197
Commissions		15,136			10,770			—			25,906
Other underwriting, acquisition and insurance expenses		8,020			10,791			2,432			21,243
Capitalization of deferred policy acquisition costs		(13,017	)		(3,859	)		—			(16,876	)
Amortization of deferred policy acquisition costs		10,038			1,491			—			11,529
Amortization of cost of customer relationships acquired and other intangibles		730			1,425			—			2,155
Total benefits and expenses		75,332			37,390			2,432			115,154
Income (loss) before Federal income tax	$	9,796			1,200			(2,780	)		8,216

(4) Total Comprehensive Income (Loss)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(In thousands)
Net income (loss)	$	2,248			(814	)		9,341			4,913
Other comprehensive income (loss) net of effects of deferred acquisition costs and taxes:
Unrealized gains (losses) on available-for-sale securities		16,963			(19,870	)		22,614			(29,514	)
Tax benefit (expense)		(3,678	)		6,954			(4,233	)		10,330
Other comprehensive income (loss)		13,285			(12,916	)		18,381			(19,184	)
Total comprehensive income (loss)	$	15,533			(13,730	)		27,722			(14,271	)

14

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

(5) Earnings Per Share

The following tables sets forth the computation of basic and diluted earnings (loss) per share:

	Three Months Ended September 30,
	2009			2008
	(In thousands, except per share amounts)
Basic and diluted earnings (loss) per share:
Numerator:
Net income (loss)	$	2,248			(814	)
Less: Preferred stock dividends		(13	)		(171	)
Accretion of deferred issuance costs and discounts on preferred stock		(144	)		(619	)
Net income (loss) available to common stockholders	$	2,091			(1,604	)
Net income (loss) allocated to Class A common stock	$	2,070			(1,585	)
Net income (loss) allocated to Class B common stock		21			(19	)
Net income (loss) available to common stockholders	$	2,091			(1,604	)
Denominator:
Weighted average shares of Class A outstanding — basic and diluted		48,441			43,198
Weighted average shares of Class B outstanding — basic and diluted		1,002			1,002
Total weighted average shares outstanding — basic and diluted		49,443			44,200
Basic and diluted earnings (loss) per share of Class A common stock	$	0.04			(0.04	)
Basic and diluted earnings (loss) per share of Class B common stock	$	0.02			(0.02	)

15

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

	Nine Months Ended September 30,
	2009			2008
	(In thousands, except per share amounts)
Basic and diluted earnings per share:
Numerator:
Net income	$	9,341			4,913
Less: Preferred stock dividends		(216	)		(514	)
Accretion of deferred issuance costs and discounts on preferred stock		(2,289	)		(1,287	)
Net income available to common stockholders	$	6,836			3,112
Net income allocated to Class A common stock	$	6,764			3,076
Net income allocated to Class B common stock		72			36
Net income available to common stockholders	$	6,836			3,112
Denominator:
Weighted average shares of Class A outstanding — basic and diluted		47,177			43,121
Weighted average shares of Class B outstanding — basic and diluted		1,002			1,002
Total weighted average shares outstanding — basic and diluted	$	48,179			44,123
Basic earnings per share of Class A common stock	$	0.14			0.07
Basic earnings per share of Class B common stock	$	0.07			0.04
Diluted earnings per share of Class A common stock	$	0.09			0.07
Diluted earnings per share of Class B common stock	$	0.04			0.04

As discussed in Note 9, on July 13, 2009, the Series A-1 and A-2 Convertible Preferred Stock was converted to Class A common stock. For the three and nine month periods ended September 30, 2008, the effects of Series A-1 and A-2 Convertible Preferred Stock were anti-dilutive; therefore, diluted income per share is reported the same as basic income per share. The Series A-1 and A-2 Convertible Preferred Stock was anti-dilutive because the amount of the dividend and accretion of deferred issuance costs and discounts for the three and nine months ended September 30, 2009 and 2008 per Class A common stock share obtainable on conversion exceeds basic income per share available to common stockholders. For the three and nine months ended September 30, 2009, certain warrants on the Convertible Preferred Stock became dilutive. As such, the diluted weighted average shares of Class A common stock outstanding for the period was 47,204,000. Total diluted weighted average shares was 48,206,000. The warrants were anti-dilutive for the three and nine months ended September 30, 2008.

(6) Investments

Investments are an integral part of the Company’s overall insurance operations. We maintain a conservative investment philosophy with investment purchases primarily in high quality investment grade securities that provide a secure return to meet cash flow requirements related to our insurance business. Approximately 93% of our investment holdings are in fixed maturity and equity securities as of September 30, 2009. The equity securities were purchased to diversify our overall investment holdings.

16

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

The following tables represent gross unrealized gains and losses for fixed maturity securities for the periods indicated.

	September 30, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Available-for-sale securities:
U.S. Treasury securities	$	11,134		1,913		—			13,047
U.S. Government-sponsored enterprises		151,134		549		(739	)		150,944
Securities issued by states and political subdivisions		50,349		1,004		(2,564	)		48,789
Securities issued by foreign governments		105		21		—			126
Public utilities		24,529		619		(324	)		24,824
Corporate		78,778		3,640		(1,377	)		81,041
Securities not due at a single maturity date		19,788		776		(45	)		20,519
Total available-for-sale securities		335,817		8,522		(5,049	)		339,290
Held-to-maturity securities:
U.S. Government-sponsored enterprises		202,197		505		(2,206	)		200,496
Total fixed maturities	$	538,014		9,027		(7,255	)		539,786
Total equity securities	$	42,414		10,424		(56	)		52,894

	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Available-for-sale securities:
U.S. Treasury securities	$	11,306		3,113		—			14,419
U.S. Government-sponsored enterprises		280,434		1,128		(500	)		281,062
Securities issued by states and political subdivisions		64,152		156		(6,203	)		58,105
Securities issued by foreign governments		105		29		—			134
Public utilities		4,231		22		(100	)		4,153
Corporate		83,089		1,112		(8,826	)		75,375
Securities not due at a single maturity date		50,717		1,564		(374	)		51,907
Total fixed maturities	$	494,034		7,124		(16,003	)		485,155
Total equity securities	$	42,908		92		—			43,000

17

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

The tables below present the fair values and gross unrealized losses of fixed maturities that have remained in a continuous unrealized loss position for the periods indicated.

	September 30, 2009
	Less than 12 months							Greater than 12 months							Total
	Fair		Unrealized			# of		Fair		Unrealized			# of		Fair		Unrealized			# of
	Value		Losses			Securities		Value		Losses			Securities		Value		Losses			Securities
	(In thousands, except for # of securities)
Available-for-sale securities:
U.S. Government—sponsored enterprises	$	68,786		(711	)		110		4,192		(28	)		3		72,978		(739	)		113
Security issued by states and political subdivisions		—		—			—		15,291		(2,564	)		15		15,291		(2,564	)		15
Public utilities		—		—			—		4,815		(324	)		2		4,815		(324	)		2
Corporate		2,587		(160	)		8		14,466		(1,217	)		9		17,053		(1,377	)		17
Securities not due at a single maturity date		—		—			—		1,413		(45	)		10		1,413		(45	)		10
Total available-for-sale		71,373		(871	)		118		40,177		(4,178	)		39		111,550		(5,049	)		157
Held-to-maturity securities:
U.S. Government—sponsored enterprises		134,692		(2,206	)		53		—		—			—		134,692		(2,206	)		53
Total fixed maturities	$	206,065		(3,077	)		171		40,177		(4,178	)		39		246,242		(7,255	)		210

	December 31, 2008
	Less than 12 months							Greater than 12 months							Total
	Fair		Unrealized			# of		Fair		Unrealized			# of		Fair		Unrealized			# of
	Value		Losses			Securities		Value		Losses			Securities		Value		Losses			Securities
	(In thousands, except for # of securities)
Available-for-sale securities:
U.S. Government—sponsored enterprises	$	18,680		(265	)		14		11,256		(235	)		11		29,936		(500	)		25
Security issued by states and political subdivisions		32,389		(2,827	)		39		21,492		(3,376	)		23		53,881		(6,203	)		62
Public utilities		—		—			—		1,915		(100	)		1		1,915		(100	)		1
Corporate		20,509		(2,170	)		51		32,965		(6,656	)		19		53,474		(8,826	)		70
Securities not due at a single maturity date		118		(8	)		3		11,629		(366	)		24		11,747		(374	)		27
Total fixed maturities	$	71,696		(5,270	)		107		79,257		(10,733	)		78		150,953		(16,003	)		185

As of September 30, 2009, the Company had 39 securities in an unrealized loss position for greater than 12 months, which were primarily municipal, corporate and mortgage-backed securities. The Company has reviewed these securities and determined that no other-than-temporary impairment exists. The Company also asserts its intent and ability to hold these securities until the price recovers or they mature.

18

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

The amortized cost and fair value of fixed maturity securities at September 30, 2009 by contractual maturity are shown 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.

	September 30, 2009
	Amortized		Fair
	Cost		Value
	(In thousands)
Available-for-sale securities:
Due in one year or less	$	7,199		7,398
Due after one year through five years		42,272		42,673
Due after five years through ten years		25,724		26,370
Due after ten years		240,834		242,330
Total available-for-sale securities		316,029		318,771
Held-to-maturity securities:
Due after ten years		202,197		200,496
Securities not due at a single maturity date		19,788		20,519
Total fixed maturities	$	538,014		539,786

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

The Company uses the specific identification method related to security sales. There were no securities sold from the held-to-maturity portfolio during the nine months ended September 30, 2009 or 2008. Proceeds and gross realized gains (losses) from sales of fixed maturities available-for-sale for the nine months ended September 30, 2009 and 2008 are summarized as follows:

	Nine Months Ended
	September 30,
	2009		2008
	(In thousands)
Proceeds	$	72,148		—
Gross realized gains	$	2,720		—
Gross realized losses	$	—		—

Proceeds and gross realized gains (losses) from sales of equity securities for the nine months ended September 30, 2009 and 2008 are summarized as follows:

	Nine Months Ended
	September 30,
	2009		2008
	(In thousands)
Proceeds	$	1,184		—
Gross realized gains	$	219		—
Gross realized losses	$	—		—

19

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

(7) Fair Value Measurements

As defined in the current accounting guidance, 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 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. Current accounting guidance requires all assets and liabilities carried at fair value 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 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 fixed maturity securities, U.S. Government-sponsored enterprise securities, municipal securities, certain mortgage and asset-backed securities , and warrants.

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 where we cannot corroborate the significant valuation inputs with market observable data.

The following table sets forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of the date indicated:

	September 30, 2009
	Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Fixed maturities available-for-sale and short-term investments	$	341,846		13,047		328,200		599
Equity securities available-for-sale		52,894		52,894		—		—
Total financial assets at fair value	$	394,740		65,941		328,200		599
Financial Liabilities:
Warrants outstanding	$	1,892		—		1,892		—

20

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

The following table presents additional information about fixed maturity securities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value:

	September 30, 2009
	(In thousands)
Beginning balance at December 31, 2008	$	654
Total realized and unrealized losses:
Included in net income		—
Included in other comprehensive income		(16	)
Principal paydowns		(39	)
Transfer in and (out) of Level 3		—
Ending balance at September 30, 2009	$	599

The Company reviews 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.

The Company has real estate held for sale that is valued at fair value on a non-recurring basis, using Level 2 independent appraisals, in the amount of $3.0 million, at September 30, 2009.

Valuation Related to Fair Value

Fixed maturity securities, available-for-sale. At September 30, 2009, the fixed maturities valued using an independent pricing source totaled $328.2 million for Level 2 assets and comprised 83.1% of total reported fair value. Fair values for Level 3 assets are based upon unadjusted broker quotes that are non-binding. The valuations are reviewed and validated quarterly through random testing by comparisons to independent pricing models, other third party pricing services, and back tested to recent trades.

For the nine months ended September 30, 2009, 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. Fair values of these securities are based upon quoted market price and are classified as Level 1 assets.

Cash and cash equivalents and Short-term investment. The carrying amounts for cash and cash equivalents reflect the assets’ fair values. The fair values for short-term investments are determined based on quoted market prices. These assets are classified as Level 1.

Warrants outstanding. Fair value of our warrants are based upon industry standard models that consider various observable inputs and are classified as Level 2.

21

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

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. The carrying amount and fair value for the financial assets and liabilities on the consolidated balance sheets for the periods indicated are as follows:

	September 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
	(In thousands)
Financial assets:
Fixed maturities, held-to-maturity	$	202,197		200,496		—		—
Mortgage loans		1,462		1,400		339		370
Policy loans		31,860		31,860		28,955		28,955
Cash and cash equivalents		77,916		77,916		63,792		63,792
Financial liabilities:
Annuities		36,585		32,877		34,025		29,107

Fair values for fixed income securities are based on quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other assumptions, including the 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 6.8% and 8.2% per year as of September 30, 2009 and December 31, 2008, respectively, with maturities ranging from one to thirty years. Management estimated the fair value using an annual interest rate of 6.25% at September 30, 2009 and December 31, 2008.

Policy loans have a weighted average annual interest rate of 7.6% as of September 30, 2009 and December 31, 2008, and have no specified maturity dates. The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheet. 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 that we have in force and cannot be valued separately and are not marketable; therefore, a fair value is not calculated.

For cash and cash equivalents, accrued investment income, reinsurance recoverable, other assets, Federal income tax payable and receivable, dividend accumulations, commissions payable, amounts held on deposit, and other liabilities, the carrying amounts approximate fair value because of the short maturity of such financial instruments.

The fair value of the Company’s liabilities under annuity contract policies were estimated at September 30, 2009 using December 31, 2008 discounted cash flows using a risk free rate plus a component for non-performance risk and interest rate risk. 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.

22

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

(8) Legal Proceedings

We are a defendant in a lawsuit originally filed on August 6, 1999 in the Texas District Court, Austin, Texas, now styled Citizens Insurance Company of America, Citizens, Inc., and Harold E. Riley v. Fernando Hakim Daccach, in which a class was originally certified by the trial court and affirmed by the Court of Appeals for the Third District of Texas. We appealed the grant of class status to the Texas Supreme Court, which on March 2, 2007, reversed the Court of Appeal’s affirmation of the trial court’s class certification order, decertified the class and remanded the case to the trial court for further proceedings consistent with the Texas Supreme Court’s opinion. As a result, no class action is presently certified, and plaintiffs’ counsel is seeking to recertify the class. In order to recertify the class, the lead plaintiff must establish that he is qualified to represent the purported class and that the res judicata effect of a class action will not have a deleterious effect on the putative class members. The underlying lawsuit alleges that certain life insurance policies we 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. We believe the lawsuit is without merit and intend to continue a vigorous defense in any remaining proceedings, including any class recertification. If the class is recertified, we would likely be further exposed to costly and time-consuming litigation, and an adverse judgment could have a material adverse effect on our results of operations and financial condition. The case is now before the Texas District Court judge for an analysis of evidence presented to determine if it warrants recertification of a class.

Security Plan Fire Insurance Company (“SPFIC”) is a defendant in a suit styled The State of Louisiana v. AAA Insurance, or Road Home Litigation, which was filed in the Civil District Court for the Parish of Orleans on August 23, 2007 by the state of Louisiana as subrogee/assignee of the insureds of more than 200 different insurance companies. The suit was filed to recover money that the state of Louisiana paid to certain insureds under the Louisiana Road Home Program for damages resulting from Hurricanes Katrina and Rita. The suit was removed to the United States District Court for the Eastern District of Louisiana on September 11, 2007 and appeals of the removal have been denied. In March 2009, the trial court judge dismissed all bad faith claims asserted against the defendants, including SPFIC. He also dismissed all claims for flood damage and all claims asserted under Louisiana’s Valued Policy Law. Despite the District Court’s recent rulings, the Road Home Litigation is still in the early stages of litigation, and no discovery has yet occurred. Therefore, it is not possible to evaluate how many claims relate to SPFIC, or the potential exposure to SPFIC. However, in the event of an adverse outcome, the potential exposure to SPFIC could be significant.

In addition to the legal proceedings described above, we may from time to time be subject to a variety of legal and regulatory actions relating to our future, current and past business operations, including, but not limited to:

• disputes over insurance coverage or claims adjudication;

• regulatory compliance with insurance and securities laws in the United States and in foreign countries;

• disputes with our marketing firms, consultants and employee agents over compensation and termination of contracts and related claims;

• disputes regarding our tax liabilities;

• disputes relative to reinsurance and coinsurance agreements; and

• disputes relating to businesses acquired and operated by us.

In the absence of countervailing considerations, we would expect to defend any such claims vigorously. However, in doing so, we could incur significant defense costs, including not only attorneys’ fees and other direct litigation costs, but also the expenditure of substantial amounts of management time that otherwise would be devoted to our business. If we suffer an adverse judgment as a result of any claim, it could have a material adverse effect on our business, results of operations and financial condition.

23

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2009
(Unaudited)

(9) Convertible Preferred Stock

In July 2004, the Company completed a private placement of Series A-1 Convertible Preferred Stock (“Series A-1 Preferred”) to four unaffiliated institutional investors. We also issued to the investors warrants to purchase shares of our Class A common stock, at an exercise price of $6.95 per share, and unit warrants to purchase Series A-2 Convertible Preferred Stock (“Series A-2 Preferred”). The conversion, exercise and redemption prices, along with the number of shares and warrants, have been adjusted for stock dividends paid on December 31, 2004 and on December 30, 2005.

On July 13, 2009, the Company converted all of its outstanding Series A-1 and Series A-2 Convertible Preferred Stock into Class A common shares in accordance with the mandatory redemption provision of the preferred shareholder agreement dated July 12, 2004. The total amount of Class A common shares issued as part of the conversion was 1,706,686, inclusive of pro rata dividends due through the conversion date.

(10) Reinsurance

In the normal course of business, the Company reinsures portions of certain policies that we underwrite to limit disproportionate risks. We retain varying amounts of individual insurance up to a maximum retention of $100,000 on any life. The Company also reinsures 100% of our accidental death benefit rider coverage. Catastrophe reinsurance is in place for our property policies and provides $10,000,000 of coverage above a $500,000 deductible. Our health insurance policies are substantially all reinsured on a 100% coinsurance basis. We remain contingently liable to the extent that the reinsuring companies cannot meet their obligations under these reinsurance treaties.

During the current quarter, the Company added a new reinsurer to assume a percentage of the reinsurance risk over $100,000 to diversify risk over several reinsurers. The Company now has three reinsurance companies to share risks exceeding our retention on any life.

(11) Income Taxes

The Company recognized an additional valuation allowance of $1,799,000 in the first quarter of 2009 due to deferred tax assets generated by other-than-temporary impairments on investment securities recorded in the quarter and additional unrealized losses that occurred on the equity portfolio. Of this amount, $135,000 was recorded as tax expense, $1,410,000 was recorded in other comprehensive loss, and $254,000 was recorded as additional goodwill from the 2008 acquisition of ONLIC. During the second quarter of 2009, $2,833,000 of the valuation allowance was released due primarily to unrealized gains arising during the quarter in the stock portfolio. Additionally, $585,000 of the valuation allowance, related to ONLIC’s stock portfolio, was released and reduced goodwill. During the third quarter of 2009, $2,258,000 of the valuation allowance was released, primarily from unrealized gains arising during the quarter in the stock portfolio. Additionally, another $213,000 of the valuation allowance was set up in the third quarter and increased goodwill of ONLIC. The net reduction of goodwill related to tax adjustments for the year to date was $118,000.

(12) Subsequent Events

Management has evaluated subsequent events through November 6, 2009, which is the date that the Company’s financial statements were filed with the Securities and Exchange Commission. No material subsequent events have occurred since September 30, 2009 that required recognition or disclosure in these financial statements other than as noted below.

The Company has obtained appropriate state insurance regulatory approval to merge ONLIC into SPLIC effective October 1, 2009. This merger will consolidate the final expense and home service operations into one company.

In September of 2009, the Company entered into an asset purchase agreement to sell Funeral Homes of America for $600,000 in cash. The sale was completed on October 30, 2009.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

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

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q are not statements of historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the “Act”), including, without limitation, statements specifically identified as forward-looking statements within this document. Many of these statements contain risk factors as well. In addition, certain statements in future filings by the Company with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with the approval of the Company, which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements, include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure, and other financial items, (ii) statements of our plans and objectives by our management or Board of Directors including those relating to products or services, (iii) statements of future economic performance and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “could,” “expects,” “intends,” “targeted,” “may,” “will” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by the forward-looking statements. Factors that could cause the Company’s future results to differ materially from expected results include, but are not limited to:

• Changes in foreign and U.S. general economic conditions, including the performance of financial markets and interest rates;

• Changes in consumer behavior, which may affect the Company’s ability to sell its products and retain business;

• The timely development of and acceptance of new products of the Company and perceived overall value of these products and services by existing potential customers;

• Fluctuations in experience regarding current mortality, morbidity, persistency and interest rates relative to expected amounts used in pricing the Company’s products;

• Results of litigation we may be involved in;

• Changes in assumptions related to deferred acquisition costs and the value of any businesses we may acquire;

• Regulatory, accounting or tax changes that may affect the cost of, or the demand for, the Company’s products or services;

• Our concentration of business from persons residing in Latin America and the Pacific Rim;

• Our success at managing risks involved in the foregoing; and

• The “risk factors” disclosed herein, as well as other risk factors disclosed previously and from time to time in our filings with the Securities and Exchange Commission.

Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events.

We make available, free of charge, through our Internet website (http://www.citizensinc.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 reports filed by officers and directors, news releases, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission. We are not including any of the information contained on our website as part of, or incorporating it by reference into, this Quarterly Report on Form 10-Q.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Overview

Citizens, Inc. is an insurance holding company serving the life insurance needs of individuals in the United States and in more than 34 countries around the world. We pursue a strategy of offering ordinary whole life insurance with a focus on cash accumulation and final expense insurance products in niche markets where we believe we are able to achieve competitive advantages. Our core operations include issuing and servicing:

• U.S. Dollar-denominated ordinary whole life insurance policies predominantly to high net worth, high income foreign residents, principally in Latin America and the Pacific Rim, through independent marketing consultants;

• ordinary whole life insurance policies to middle income households in the midwest and the southern United States through independent marketing consultants; and

• final expense and limited liability property policies to middle and lower income households in Louisiana and Arkansas through employee and independent agents in our home service distribution channel.

The Company reported earnings, net of tax, of $2.2 million and $9.3 million for the three and nine months ended September 30, 2009. Total revenues of $44.8 million and $134.9 million were recorded for the three and nine months ended September 30, 2009. Assets totaled $919.6 million as of September 30, 2009.

Life Insurance. For more than 30 years, CICA and its predecessors have participated in the foreign marketplace through the issuance of U.S. Dollar-denominated ordinary whole life insurance to foreign nationals. Traditionally, this market has focused on the top 3-5% of the population of a country in terms of income and net worth. Over the 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. We make our insurance products available using third-party marketing organizations and independent marketing consultants. We received applications from 28 countries outside of the U.S. in the first nine months of 2009. Historically, the majority of our international business has come from Latin America; however, the Pacific Rim now represents a meaningful source of new business.

Through the domestic market of our Life Insurance segment, we provide ordinary whole life, credit life insurance, and final expense policies to middle income families and individuals in certain markets in the midwest and southern U.S. The majority of our revenues domestically are the result of U.S. domiciled life insurance company acquisitions since 1987.

Home Service Insurance. We provide final expense ordinary life insurance to middle and lower income individuals, primarily in Louisiana and Arkansas. Policies in this segment are sold and serviced through funeral homes or the home service marketing distribution system utilizing employee-agents who work on a route system to collect premiums and service policyholders.

The Company entered the Home Service business in 2004 with the acquisition of SPLIC and SPFIC. The acquisition of ONLIC in 2008 broadened the Home Service business into Arkansas. ONLIC was merged into SPLIC in October of 2009. The Company intends to continue to expand this segment through sales promotion and potential future acquisitions.

Marketplace Conditions and Trends

Described below are some of the significant trends affecting the life insurance industry and the possible effects they may have on our future operations.

• The global recession has had an adverse impact on our insurance policy sales. We anticipate new insurance policy sales will be at lower levels until such time as the global economy recovers.

• As an increasing percentage of the world population reaches retirement age, we believe we 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. Our 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.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

• We are exposed to a variety of risks, including the current market conditions as well as the credit crisis, the current recession and corresponding potential changes in the fair value of our investments. In the normal course of business, we employ established policies and procedures to manage our exposure to fluctuations in the current market and changes in the fair value of our investments.

• Because of the trends described above, coupled with increasing costs of regulatory compliance such as the Sarbanes-Oxley Act of 2002, we believe there is a trend toward consolidation of domestic life insurance companies. We believe these trends should be a benefit to our acquisition strategy as more complementary acquisition candidates may become available for us to consider.

• Many of the events and trends affecting the life insurance industry have had an impact on the life reinsurance industry. These events led to a decline in the availability of reinsurance. While we currently cede a limited amount of our primary insurance business to reinsurers, we may find it difficult to obtain reinsurance in the future, forcing us to seek reinsurers who are more expensive to us. If we cannot obtain affordable reinsurance coverage, either our net exposures will increase or we will have to reduce our underwriting commitments.

Recent Acquisition

The Company completed its acquisition ICC in exchange for 1,294,000 shares of Class A common stock in the first quarter of 2009. ICC is the parent of ICIC, an Indiana life insurance company. The transaction was valued at $9.0 million on February 27, 2009, the closing date.

Consolidated Results of Operations

The following tables sets forth our consolidated net income and loss for the periods indicated:

							Net Income (Loss)
Three Months Ended	Net Income (Loss)			Basic Earnings (Loss)			Increase (Decrease)
September 30,	(in thousands)			per Class A Share			from Previous Year
2009	$	2,248		$	0.04			376.2	%
2008		(814	)		(0.04	)		(117.5	)

					Net Income
Nine Months Ended	Net Income		Basic Earnings		Increase (Decrease)
September 30,	(in thousands)		per Class A Share		from Previous Year
2009	$	9,341	$	0.14		90.1	%
2008		4,913		0.07		(53.8	)

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Revenues: Total revenues for the three and nine months ended September 30, 2009 increased 11.7% and 9.4% over the same periods in 2008 due primarily to increases in life insurance premiums, realized gains on investments and the adjustment in fair value of the Company’s warrants. Total revenues excluding fair value adjustments of warrants outstanding increased 7.7% and 5.4% for the three and nine months ended September 30, 2009 compared to the same periods in 2008.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
	(In thousands)
Revenues:
Premiums:
Life insurance	$	34,589		32,837			101,858			97,178
Accident and health insurance		371		384			1,135			1,178
Property insurance		1,192		820			3,501			3,559
Net investment income		7,413		7,543			21,733			22,487
Realized gains (losses), net		1,006		(226	)		2,827			(210	)
Decrease (increase) in fair value of warrants		—		(1,483	)		3,081			(1,674	)
Other income		273		288			796			852
Total revenues		44,844		40,163			134,931			123,370
Exclude increase (decrease) in fair value of warrants		—		1,483			(3,081	)		1,674
Total revenues excluding fair value adjustments of warrants outstanding	$	44,844		41,646			131,850			125,044

Premium Income. Premium income increased for the three and nine months ended September 30, 2009 to $36.2 million and $106.5 million from $34.0 million and $101.9 million for the same period in 2008. The increase in 2009 was due primarily to an increase in renewal premiums totaling $31.3 million and $93.1 million for the three and nine months ended September 30, 2009 compared to $29.9 million and $86.4 million for the same periods in 2008. In addition, approximately $0.9 million and $2.7 million of premium income for the three and nine months ended September 30, 2009 related to the acquisitions ICIC and ONLIC, which were not included in the first nine months of 2008.

Net Investment Income. Net investment income decreased to $7.4 million and $21.7 million for the three and nine months ended September 30, 2009 compared to $7.5 million and $22.5 million during the same period in 2008. The decrease in 2009 resulted from increased call activity on the fixed maturity securities portfolio due to the low interest rate environment, as well as the lower reinvestment rates available, which depressed the net investment income in 2009 compared to 2008. Investment income from fixed maturity securities accounted for approximately 81% of total investment income for the nine months ended September 30, 2009. We continue to invest primarily in bonds of U.S. Government-sponsored enterprises, such as FNMA and FHLMC.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Investment income related to equity securities increased from $187,000 and $485,000 for the three and nine months ended September 30, 2008 to $254,000 and $803,000 for the same periods in 2009. This increase resulted primarily from the equity securities of ONLIC acquired in the fourth quarter of 2008, which are included in the three and nine months ended September 30, 2009 and are not included in the comparable periods of 2008.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
	(In thousands)
Gross investment income:
Fixed maturity securities	$	6,461		6,706		18,591		19,733
Equity securities		254		187		803		485
Mortgage loans		5		8		18		20
Policy loans		628		526		1,813		1,520
Real estate investments		357		213		1,071		643
Other investment income		120		220		641		949
Total investment income		7,825		7,860		22,937		23,350
Less investment expenses		412		317		1,204		863
Net investment income	$	7,413		7,543		21,733		22,487

Realized Gains, Net. The Company realized net gains of $1.0 million and $2.8 million for the three and nine months ended September 30, 2009 compared to realized net losses of $226,000 and $210,000 for the same periods in 2008. The increase in realized amounts in 2009 was primarily due to gains related to sales of fixed maturity securities offset by realized losses of $111,000 relating to other-than-temporary impairments recorded in the first quarter of 2009.

Change in Fair Value of Warrants. The Company recognized revenues from adjusting the fair value of our Class A common stock warrants of $3.1 million in the nine months ended September 30, 2009 compared to losses of $1.7 million for the same period in 2008. For the three months ended September 30, 2009, there was minimal change in the fair value adjustment due to the Company’s stock price remaining fairly constant over the period. The Company adjusts the warrant liability at each reporting date to reflect the current fair value of warrants computed based upon the stock value and current market conditions, calculated using the Black-Scholes option pricing model. As the stock value increases and decreases, the warrant liability also increases and decreases in a like manner. The adjustment to fair value is recorded as an increase or decrease in fair value of warrants on the consolidated statement of operations.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Benefits and Expenses: The table below summarizes the benefits and expenses for the periods indicated.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(In thousands)
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	$	14,494			13,855			44,254			41,663
Increase in future policy benefit reserves		10,305			10,214			28,021			24,944
Policyholders’ dividends		1,827			1,636			4,742			4,590
Total insurance benefits paid or provided		26,626			25,705			77,017			71,197
Commissions		8,435			8,819			25,462			25,906
Other underwriting, acquisition and insurance expense		6,772			7,312			21,889			21,243
Capitalization of deferred policy acquisition costs		(5,306	)		(5,712	)		(16,257	)		(16,876	)
Amortization of deferred policy acquisition costs		4,303			3,861			11,715			11,529
Amortization of cost of customer relationships acquired and other intangibles		946			676			2,630			2,155
Total benefits and expenses	$	41,776			40,661			122,456			115,154

Claims and Surrenders. As noted in the table below, claims and surrenders increased from $13.9 million and $41.7 million in the three and nine months ended September 30, 2008 to $14.5 million and $44.3 million during the same periods in 2009.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
	(In thousands)
Death claims	$	5,454		5,156		17,236		17,058
Surrender benefits		4,530		3,591		14,158		10,768
Endowments		3,455		3,415		10,049		10,209
Property claims		514		1,178		1,264		2,226
Accident and health benefits		113		96		323		256
Other policy benefits		428		419		1,224		1,146
Total claims and surrenders	$	14,494		13,855		44,254		41,663

Death Claims increased to $5.5 million and $17.2 million for the three and nine months ended September 30, 2009 compared to $5.2 million and $17.1 million for the same periods in 2008. These amounts vary from period to period and were within Company expectations.

Surrender benefits increased to $4.5 million and $14.2 million for the three and nine months ended September 30, 2009 compared to $3.6 million and $10.8 million for the same periods in 2008. These amounts represent payments to contract holders upon termination of a contract. The Company monitors surrenders on an ongoing basis. Surrenders as a percent of ordinary whole life insurance in force were 0.7% in the first nine months of 2009 and 0.5% in the first nine months of 2008. Management believes this increase in surrenders may be the result of the global recession affecting our policyholders.

The decrease in property claims was a result of no hurricanes in Louisiana in 2009. In 2008, hurricanes Gustav and Ike hit Louisiana, causing losses of $741,000 in the three and nine month periods ended September 30.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Increase in Reserves. Included in the 2009 increase in reserves, compared to 2008, were ONLIC reserve corrections of $0.4 million reported as of September 30, 2009. These adjustments to increase reserves were related to data issues that were discovered in the second quarter. In addition, 2008 reserves were depressed due to a correction of $796,000 related to a reserve factor error that was corrected in the first quarter of 2008. Likewise, the three months ended September 30, 2008 reflected a manual correction that decreased reserves by $1.0 million related to a policy lapse correction.

Policyholders’ Dividends. The Company sells participating ordinary whole life products. These policyholder dividends are factored into the premiums and, therefore, have no impact on profitability.

Commissions. Commissions during the three and nine months ended September 30, 2009 decreased to $8.4 million and $25.5 million from $8.8 million and $25.9 million in 2008. The decrease was primarily due to lower first year commissions, as first year premiums were down in 2009 compared to 2008 due to the global recession.

Other Underwriting, Acquisition and Insurance Expense. These expenses decreased to $6.8 million for the three months ended September 30, 2009, and increased to $21.9 million for the nine months ended September 30, 2009, compared to $7.3 million and $21.2 million for the same periods in 2008. The decrease for the quarter was due primarily to a one-time equipment tax of $0.3 million. The increase in the nine months ended September 30, 2009 compared to the same period in 2008 was due primarily to $1.3 million of expense from the acquisition of ONLIC and ICIC, which were not in 2008 expenses, offset by the previously mentioned state tax of $0.3 million and lower audit fees in 2009.

Federal Income Tax. The effective tax rates for the three and nine months ended September 30, 2009 were 26.7% and 25.1% versus 63.5% and 40.2% for the same periods in 2008. The rate variance from the statutory rate of 35% was due to the fact that the changes in fair value of our Class A common stock warrants are not tax effected. These changes resulted in no gain for the three months and a $3.1 million gain for the nine months ended September 30, 2009 compared to a loss of $1.7 million for the nine months ended September 30, 2008. Also, the Company recorded an additional valuation allowance of $135,000 in the first nine months of 2009 related to other-than-temporary impairments recognized in the second quarter.

Segment Operations

The Company has three reportable segments: Life Insurance, Home Service Insurance and Other Non-Insurance Enterprises. These segments are reported in accordance with U.S. GAAP. The Company evaluates profit and loss performance based on net income before Federal income taxes.

						Other
			Home			Non-
	Life		Service			Insurance
	Insurance		Insurance			Enterprises			Total
	(In thousands)
Income (loss) before Federal income tax:
Three months ended:
September 30, 2009	$	2,522		967			(421	)		3,068
September 30, 2008		3,010		(1,833	)		(1,675	)		(498	)
Nine months ended:
September 30, 2009		7,938		3,232			1,305			12,475
September 30, 2008		9,796		1,200			(2,780	)		8,216

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Life Insurance

Our Life Insurance segment consists of issuing primarily ordinary whole life insurance in U.S. Dollar-denominated amounts to foreign residents, and domestically through independent marketing firms and consultants.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(In thousands)
Revenue:
Premiums	$	25,795			24,634			75,570			72,584
Net investment income		4,232			4,309			12,196			12,519
Realized gains (losses), net		650			(223	)		1,068			(220	)
Other income		108			89			267			245
Total revenue		30,785			28,809			89,101			85,128
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		10,035			8,644			30,259			26,462
Increase in future policy benefit reserves		8,850			8,335			24,258			23,430
Policyholders’ dividends		1,809			1,618			4,687			4,533
Total insurance benefits paid or provided		20,694			18,597			59,204			54,425
Commissions		4,827			5,206			14,531			15,136
Other underwriting, acquisition and insurance expenses		2,563			2,813			7,873			8,020
Capitalization of deferred policy acquisition costs		(3,975	)		(4,526	)		(12,227	)		(13,017	)
Amortization of deferred policy acquisition costs		3,757			3,500			10,677			10,038
Amortization of cost of customer relationships acquired and other intangibles		397			209			1,105			730
Total benefits and expenses		28,263			25,799			81,163			75,332
Income before Federal income tax	$	2,522			3,010			7,938			9,796

Premiums. Premium revenues increased 4.7% and 4.1% to $25.8 million and $75.6 million for the three and nine months ended September 30, 2009 compared to $24.6 million and $72.6 million for the same three and nine months in 2008. The increase was primarily due to an increase in renewal business and increased premium revenue related to the acquisition of ICIC in the first quarter of 2009, which was not included in 2008.

Net Investment Income. Net investment income decreased 1.8% and 2.6% when comparing the three and nine months ended September 30, 2009 to the same periods of 2008. The decrease related to low investment rates available in 2009, as well as the significant call activity the Company experienced in the current year.

Realized Gains (Losses), Net. Net realized gains of $0.7 million and $1.1 million for the three and nine months ended September 30, 2009 were recognized and related to sales of bonds purchased in early 2009 and sold as credit spreads tightened.

Claims and Surrenders. Claims and surrenders increased to $10.0 million and $30.3 million for the three and nine months ended September 30, 2009 compared to $8.6 million and $26.5 million for the same three and nine months of 2008. These amounts fluctuated from period to period but were within anticipated ranges based upon management’s expectations.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Commissions. Commission expense decreased to $4.8 million and $14.5 million for the three and nine months ended September 30, 2009 compared to $5.2 million and $15.1 million for the same periods in 2008, as a result of increased premium revenue related to renewal business, which pays a lower commission rate, versus the 2008 premium, which had a higher percentage of first year premiums with higher commission rates, as noted above.

Home Service Insurance

Our Home Service Insurance segment provides final expense ordinary life insurance to middle and lower income individuals in Louisiana and Arkansas. Our policies in this segment are sold and serviced through a home service marketing distribution system utilizing employee and independent agents.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(In thousands)
Revenue:
Premiums	$	10,357			9,407			30,924			29,331
Net investment income		3,126			3,072			9,396			9,255
Realized gains (losses), net		356			(3	)		1,682			(8	)
Other income		20			1			84			12
Total revenue		13,859			12,477			42,086			38,590
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders		4,459			5,211			13,995			15,201
Increase in future policy benefit reserves		1,455			1,879			3,763			1,514
Policyholders’ dividends		18			18			55			57
Total insurance benefits paid or provided		5,932			7,108			17,813			16,772
Commissions		3,608			3,613			10,931			10,770
Other underwriting, acquisition and insurance expenses		3,588			3,947			11,577			10,791
Capitalization of deferred policy acquisition costs		(1,331	)		(1,186	)		(4,030	)		(3,859	)
Amortization of deferred policy acquisition costs		546			361			1,038			1,491
Amortization of cost of customer relationships acquired and other intangibles		549			467			1,525			1,425
Total benefits and expenses		12,892			14,310			38,854			37,390
Income (loss) before Federal income tax	$	967			(1,833	)		3,232			1,200

Premiums. The ONLIC acquisition represented the majority of the increase in premium revenue, with $0.5 million and $1.5 million reported in the three and nine months ended September 30, 2009 compared to the same periods in 2008. It is the Company’s objective to continue to expand the Home Service Insurance segment operations.

Net Investment Income. Net investment income increased 1.8% and 1.5% to $3.1 million and $9.4 million for the three and nine months ended September 30, 2009 compared to $3.1 million and $9.3 million for the same periods in 2008. The increase in 2009 is due to the overall increase in the investment portfolio holdings with the addition of ONLIC. In addition, SPLIC received $240,000 from a lawsuit settlement related to a bond in default.

Realized Gains (Losses), Net. Net realized gains of $0.4 million and $1.7 million for the three and nine months ended September 30, 2009 were recognized primarily related to bond sales, which resulted in gross gains of $1.6 million for the nine months ended September 30, 2009, and sales of stocks in ONLIC’s portfolio resulting in gains of approximately $218,000. The gains were offset by realized losses of $103,000 resulting from other-than-temporary impairments recorded on ONLIC’s bond portfolio during the first quarter of 2009.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Claims and Surrenders. Claims and surrenders decreased with $4.5 million and $14.0 million recorded for the three and nine month periods ended September 30, 2009 compared to $5.2 million and $15.2 million for the same periods in 2008. This decrease was due primarily to a decrease in death benefits for SPLIC and a decrease in casualty claims for SPFIC in 2009 compared to the same period in 2008. SPFIC results in 2008 included claims from Hurricanes Ike and Gustav totaling $0.7 million.

Increase in Future Policy Benefit Reserves. Policy reserves decreased for the three months ended September 30, 2009 to $1.5 million from $1.9 million in the same period in 2008 and increased to $3.8 million compared to $1.5 million for the nine months ended September 30, 2009 and 2008, respectively. The year-to-date increase in 2009 included $0.4 million resulting from a correction related to ONLIC reserves caused by data issues discovered in the second quarter. There was $0.5 million reserve increase for the quarter and $1.7 million year to date relating to the acquisition of ONLIC, which was not included in operations in 2008.

Commissions. Commissions expense remained flat for the three months ended September 30, 2009 at $3.6 million compared to the same period in 2008, and for the nine months ended September 30, 2009 commissions increased to $10.9 million from $10.8 million in the same period of 2008. Commissions expense in 2009 includes ONLIC commissions that were not included in 2008, offset by the higher commissions recorded in 2008 for Security Plan due to the use of a manual computation used, which resulted in a higher commission expense. This process has been partially automated in 2009 and is resulting in a more refined computation in the current year.

Other Underwriting, Acquisition and Insurance Expenses. Other underwriting, acquisition and insurance expenses decreased to $3.6 million for the quarter ended September 30, 2009 compared to $3.9 million for the same period in 2008. This decrease related to economies of scale achieved on acquisitions through the elimination of duplicate staff positions. For the nine months ended September 30, 2009, other underwriting, acquisition and insurance expense increased to $11.6 million compared to $10.8 million in the same period in 2008, due primarily to expenses associated with the acquisition of ONLIC.

Other Non-Insurance Enterprises

Loss before Federal income tax expense for other non-insurance enterprises was $1.7 million and $2.8 million for the three and nine months ended September 30, 2008 compared to a loss of $0.4 million and income of $1.3 million for the same periods in 2009. Overall, other non-insurance operations are relatively immaterial to the consolidated results, except for the fair value adjustment related to the Company’s warrants. The fair value adjustment for the nine months ended September 30, 2009 was $3.1 million, which was recorded as revenue, compared to a loss of $1.7 million recorded for the same period in 2008. These amounts fluctuate due to the movement in our Class A common stock price and fair value calculation using the Black-Scholes valuation model.

Investments

The administration of our investment portfolio is handled by our management, pursuant to board-approved investment guidelines, with all trading activity approved by a committee of the respective boards of directors of our insurance company subsidiaries. The guidelines used require that bonds, both government and corporate, are of high quality and comprise a majority of the investment portfolio. The assets selected are intended to mature in accordance with the average maturity of the insurance products and to provide the cash flow for our insurance company subsidiaries to meet their respective policyholder obligations.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

The following table shows the carrying value of our investments by investment category, cash and cash equivalents, and the percentage of each to total invested assets.

	September 30, 2009					December 31, 2008
	Carrying		Percent			Carrying		Percent
	Value		of Total			Value		of Total
	(In thousands)					(In thousands)
Fixed maturity securities:
U.S. Government-sponsored corporations and U.S. Government agencies (1)	$	366,188		51.0	%	$	295,481		46.6	%
Corporate		81,041		11.3			75,375		11.8
Municipal bonds		48,789		6.8			58,105		9.2
Mortgage-backed (2)		20,519		2.9			51,907		8.2
Public utilities		24,824		3.5			4,153		0.7
Foreign governments		126		—			134		—
Total fixed maturity securities		541,487		75.5			485,155		76.5
Cash and cash equivalents		77,916		10.9			63,792		10.1
Short-term investments		2,556		0.3			2,250		0.4
Other investments:
Policy loans		31,860		4.4			28,955		4.6
Equity securities		52,894		7.4			43,000		6.8
Mortgage loans		1,462		0.2			339		0.1
Real estate and other long-term investments		9,259		1.3			9,553		1.5
Total cash, cash equivalents and investments	$	717,434		100.0	%	$	633,044		100.0	%

(1)	Includes U.S. Treasury securities of $13,047,000 and $14,419,000 and U.S. Government agencies and U.S. Government-sponsored corporations of $353,141,000 and $281,062,000 at September 30, 2009 and December 31, 2008, respectively.
(2)	Includes $17,057,000 and $46,371,000 of U.S. Government agencies and U.S. Government-sponsored corporations at September 30, 2009 and December 31, 2008, respectively.

The Company established a held-to-maturity portfolio during the second quarter of 2009 in accordance with accounting guidance and management’s intent at the time of purchase of the security. The held-to-maturity portfolio as of September 30, 2009 represents 37.3% of the total fixed maturity securities owned based upon carrying values, with the remaining 62.7% classified as available-for-sale. 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 experienced significant call volume during the current year as market interest rates declined. Approximately 65% of the fixed maturity portfolio at September 30, 2009 is exposed to call risk. The Company has reinvested a portion of the proceeds in shorter duration corporate securities in anticipation that interest rates will rise and these future funds can be reinvested in longer term bonds yielding higher rates. As of September 30, 2009, balances held in cash and cash equivalents were higher compared to December 31, 2008 due to a time lag of reinvesting the fixed maturity securities that were called and a payable of $13.8 million related to securities in the process of settlement. This balance is expected to decline and be more in line with the year-end 2008 balances as these funds are reinvested in longer term fixed maturities.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value.

	September 30, 2009					December 31, 2008
	Carrying					Carrying
	Value		%			Value		%
	(In thousands)					(In thousands)
AAA and U.S. Government	$	404,875		74.8	%	$	379,547		78.2	%
AA		22,470		4.1			37,263		7.7
A		70,060		13.0			56,043		11.6
BBB		38,657		7.1			7,217		1.5
BB and other		5,425		1.0			5,085		1.0
Totals	$	541,487		100.0	%	$	485,155		100.0	%

The Company’s holding of BBB bonds increased during the first nine months of 2009, as the Company purchased additional public utility and industrial corporate bonds in order to shorten its portfolio duration in light of the historically low interest rates.

Other-Than-Temporary Impairment (“OTTI”) Review

Unrealized losses for all investment securities are reviewed to determine whether the losses are “other-than-temporary.” Investment securities are evaluated for OTTI at least quarterly and more frequently when economic or market conditions warrant such an evaluation. In conducting this assessment, the Company evaluates a number of factors including, but not limited to:

• how much fair value has declined below amortized cost;

• how long the decline in fair value has existed;

• the financial condition of the issuer;

• contractual or estimated cash flows of the security;

• underlying supporting collateral;

• past events, current conditions and forecasts;

• significant rating agency changes on the issuer; and

• the Company’s intent and ability to hold the fixed maturity security until maturity or for a period of time sufficient to allow for full recovery in fair value.

The term “other-than-temporary” is not intended to indicate that the decline in security value is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings or other comprehensive income is recognized. In the first quarter of 2009, the Company recorded other-than-temporary impairment charges relating to our bond and stock portfolios totaling $111,000 recognized in earnings. There were no OTTI charges recorded relating to the second or third quarter of 2009.

Liquidity and Capital Resources

Liquidity refers to a company’s ability to generate sufficient cash flows to meet the needs of its operations. Liquidity is managed on insurance operations and seeks to ensure stable and reliable sources of cash flows to meet obligations provided by a variety of sources.

Liquidity requirements of Citizens are met primarily by funds provided from operations. Premium deposits and revenues, investment income and investment maturities are the primary sources of funds, while investment purchases, policy benefits, and operating expenses are the primary uses of funds. We historically have not had to liquidate investments to provide cash flow and did not do so during the first nine months of 2009. For the first nine months of 2009, the Company experienced high call volume related to fixed maturity securities totaling $276.1 million compared to $130.8 million for the first nine months of 2008.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

A potential liquidity concern is the risk of an extraordinary level of early policyholder withdrawals. We include provisions within our insurance policies, such as surrender charges, that help limit and discourage early withdrawals. Since these contractual withdrawals, as well as the level of surrenders experienced, were largely consistent with our assumptions in asset liability management, our associated cash outflows, to date, have not had an adverse impact on our overall liquidity. Individual life insurance policies are less susceptible to withdrawal than annuity reserves and deposit liabilities because policyholders may incur surrender charges and undergo a new underwriting process in order to obtain a new insurance policy. Cash flow projections and cash flow tests under various market interest rate scenarios are also performed annually to assist in evaluating liquidity needs and adequacy. We currently anticipate that available liquidity sources and future cash flows will be adequate to meet our needs for funds.

Cash flows from our insurance operations have been sufficient to meet current needs. Cash flows from operating activities were $36.3 million and $34.7 million for the nine months ended September 30, 2009 and 2008, respectively. We have traditionally also had significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows, for the most part, are reinvested into fixed income securities. During the second and third quarters of 2009, with purchases of $202.3 million, the Company established a held-to-maturity portfolio. Net cash outflows from investment activity totaled $23.7 million for the nine months ended September 30, 2009, and $12.1 million for the nine months ended September 30, 2008. The outflows from investing activities for the nine months ended September 30, 2009 were a result of the investment of excess cash from operations reduced by $9.8 million in cash acquired in the Integrity Capital Corporation acquisition. The outflows from investing activities for the nine months ended September 30, 2008 primarily related to the investment of excess cash and cash equivalents generated from operations.

Stockholders’ equity at September 30, 2009 increased to $215.5 million compared to $171.5 million at December 31, 2008. The increase in 2009 was due to an increase in income earned during the period, as well as an increase in unrealized gains generated from the investment portfolio. Stockholders’ equity also increased as a result of the issuance of $8.4 million of Class A common stock for the acquisition of ICC and the redemption value of $10.0 million resulting from the conversion of Series A-1 and A-2 Convertible Preferred Stock to Class A common stock during the period.

Investments increased to $639.5 million at September 30, 2009 from $569.3 million at December 31, 2008. Fixed maturities are categorized into fixed maturities available-for-sale, which are carried in our consolidated financial statements at fair value, and fixed maturities held-to-maturity, which are carried in our consolidated financial statements at amortized cost. Fixed maturities available-for-sale were 53.1% of investments at September 30, 2009 and 85.2% at December 31, 2008. Likewise, fixed maturities held-to-maturity were 31.6% of investments at September 30, 2009. There were no securities classified as held-to-maturity at December 31, 2008.

Policy loans were $31.9 million at September 30, 2009 and $29.0 million at December 31, 2008. These loans, which are secured by the underlying policy values, have yields ranging from 5% to 12% and maturities that are related to the maturity or termination of the applicable policies. Management believes that we maintain adequate liquidity despite the uncertain maturities of these loans.

Our cash balances at our primary depositories were significantly in excess of Federal Deposit Insurance Corporation coverage at September 30, 2009 and December 31, 2008. Management monitors the solvency of all financial institutions in which we have funds to minimize the exposure for loss. Management does not believe we have significant risk for such a loss.

The National Association of Insurance Commissioners (“NAIC”) has established minimum capital requirements in the form of Risk-Based Capital (“RBC”). Risk-based capital factors the type of business written by an insurance company, the quality of its assets, and various other aspects of an insurance company’s business to develop a minimum level of capital called “authorized control level risk-based capital” and compares this level to adjusted statutory capital that includes capital and surplus as reported under statutory accounting principles, plus certain investment reserves. Should the ratio of adjusted statutory capital to authorized control level risk-based capital fall below 200%, a series of actions by the affected company would begin.

Two of our subsidiaries fell below the minimum threshold at December 31, 2008. A capital contribution of $1.0 million was made to SPFIC during the first quarter of 2009 because the ratio fell below 200% at December 31, 2008. An additional $1.0 million contribution was made to SPFIC in the third quarter of 2009. Adjustments have also been made relative to SPFIC product profitability that we expect will have a positive impact on operations through the remainder of 2009 and into 2010. A capital contribution of $1.0 million was also made to ONLIC during the first quarter of 2009 when its ratio fell below 200% at December 31, 2008. The decline in SPFIC’s capital balance mainly resulted from hurricane losses in 2008 and an increase in operating expenses. The reduction in ONLIC’s capital balance resulted from declines in asset values of preferred and common stock holdings. The capital contributions made in 2009 increased the ratios as anticipated in action plans submitted to the appropriate state insurance departments. The Company has received approval from the respective state insurance departments to merge ONLIC into SPLIC as of October 1, 2009. The capital contributions did not impact the overall consolidated financial position or results of operations of the Company.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Contractual obligations and off-balance sheet arrangements

There have been no material changes in contractual obligations from those reported at December 31, 2008 in the Company’s Form 10-K for the year ended December 31, 2008. The Company does not have off-balance sheet arrangements at September 30, 2009 and does not expect any future effects on the Company’s financials related to any such arrangements. We do not utilize special purpose entities as investment vehicles, nor are there any such entities in which we have an investment that engages in speculative activities of any nature, and we do not use such investments to hedge our investment positions.

Parent Company Liquidity and Capital Resources

We are a holding company and have had minimal operations of our own. Our assets consist primarily of the capital stock of our subsidiaries. Accordingly, our cash flows depend upon the availability of statutorily permissible payments, primarily payments under management agreements from our two primary life insurance subsidiaries, CICA and SPLIC. The ability to make payments is limited by applicable laws and regulations of Colorado, CICA’s state of domicile, and Louisiana, SPLIC’s state of domicile, which subject insurance operations to significant regulatory restrictions. These laws and regulations require, among other things, that these insurance subsidiaries maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company. We historically have not relied upon dividends from subsidiaries for our cash flow needs.

Critical Accounting Policies

Our critical accounting policies are as follows:

Policy Liabilities

Future policy benefit reserves have been computed by the net level premium method with assumptions as to investment yields, dividends on participating business, mortality and withdrawals based upon our experience. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of policy liabilities and the increase in future policy benefit reserves. Management’s judgments and estimates for future policy benefit reserves provide for possible unfavorable deviation.

We continue to use the original assumptions (including a provision for the risk of adverse deviation) in subsequent periods to determine the changes in the liability for future policy benefits (the “lock-in concept”) unless a premium deficiency exists. Management monitors these assumptions and has determined that a premium deficiency does not exist at September 30, 2009. Management believes that our policy liabilities and increase in future policy benefit reserves as of and for the nine months ended September 30, 2009 and 2008 are based upon assumptions, including a provision for the risk of adverse deviation, that do not warrant revision. The relative stability of these assumptions and management’s analysis is discussed below.

Deferred Policy Acquisition Costs

Acquisition costs, consisting of commissions and policy issuance, underwriting and agency expenses that relate to and vary with the production of new business, are deferred. These deferred policy acquisition costs are amortized primarily over the estimated premium paying period of the related policies in proportion to the ratio of the annual premium recognized to the total premium revenue anticipated, using the same assumptions as were used in computing liabilities for future policy benefits.

We utilize the factor method to determine the amount of costs to be capitalized and the ending asset balance. The factor method is based on the ratio of premium revenue recognized for the policies in force at the end of each reporting period compared to the premium revenue recognized for policies in force at the beginning of the reporting period. The factor method ensures that policies that lapsed or surrendered during the reporting period are no longer included in the deferred policy acquisition costs calculation. The factor method limits the amount of deferred costs to its estimated realizable value, provided actual experience is comparable to that contemplated in the factors.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Inherent in the capitalization and amortization of deferred policy acquisition costs are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization. Approximately 80% of our capitalized deferred acquisition costs are attributed to first year excess commissions. The remaining 20% are attributed to costs that vary with and are directly related to the acquisition of new insurance business. Those costs generally include costs related to the production, underwriting and issuance of new business.

A recoverability test that considers, among other things, actual experience and projected future experience is performed at least annually. These annual recoverability tests initially calculate the available premium (gross premium less benefit and expense portion of premium) for the next 30 years. The available premium per policy and the deferred policy acquisition costs per policy are then calculated. The deferred policy acquisition costs are then evaluated over two methods utilizing reasonable assumptions and two other methods using pessimistic assumptions. The two methods using reasonable assumptions illustrate an early-deferred policy acquisition recoverability period. The two methods utilizing pessimistic assumptions still support early recoverability of our aggregate deferred policy acquisition costs. Management believes that our deferred policy acquisition costs and related amortization as of and for the nine months ended September 30, 2009 and 2008 limits the amount of deferred costs to its estimated realizable value. This belief is based upon the analysis performed on capitalized expenses that vary with and are primarily related to the acquisition of new and renewal insurance business, utilization of the factor method and annual recoverability testing.

Cost of Customer Relationships Acquired

Cost of Customer Relationships Acquired (“CCRA”) is established when we purchase a block of insurance. CCRA is amortized primarily over the emerging profit of the related policies using the same assumptions as were used in computing liabilities for future policy benefits. We utilize various methods to determine the amount of the ending asset balance, including a static model and a dynamic model. Inherent in the amortization of CCRA are certain management judgments about the ending asset balance and the annual amortization. The assumptions used are based upon interest, mortality and lapses at the time of purchase.

A recoverability test that considers, among other things, actual experience and projected future experience is performed at least annually. These annual recoverability tests initially calculate the available premium (gross premium less benefit and expense portion of premium) for the next thirty years. The CCRA is then evaluated utilizing reasonable assumptions. Management believes that our CCRA and related amortization is recoverable as of and for the nine months ended September 30, 2009 and 2008. This belief is based upon the analysis performed on estimated future results of the block and our annual recoverability testing.

Goodwill

Current accounting guidance requires that goodwill balances be reviewed for impairment at least annually or more frequently if events occur or circumstances change that would indicate that a triggering event has occurred. A reporting unit is defined as an operating segment or one level below an operating segment. Most of the Company’s reporting units, for which goodwill has been allocated, are equivalent to the Company’s operating segments as there is no discrete financial information available for the separate components of the segment or all of the components of the segment have similar economic characteristics. Additional goodwill in the amount of $254,000 was included in the first quarter of 2009 related to the acquisition of ONLIC in the fourth quarter of 2008.

The goodwill impairment test follows a two step process as defined under current accounting guidance. In the first step, the fair value of a reporting unit is compared to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed for purposes of measuring the impairment. In the second step, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. If the carrying amount of the reporting unit goodwill exceeds the implied goodwill value, an impairment loss is recognized in an amount equal to that excess.

Management’s determination of the fair value of each reporting unit incorporates multiple inputs including discounted cash flow calculations, peer company price to earnings multiples, the level of the Company’s Class A common stock price and assumptions that market participants would make in valuing the reporting unit. Other assumptions can include levels of economic capital, future business growth, and earnings projections.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

As of December 31, 2008, the Company had goodwill allocated to both the Life Insurance segment as well as the Home Service Insurance segment. The Company completed its annual goodwill assessment for the individual reporting units within the Life Insurance segment and Home Service Insurance segment as of December 31, 2008 and no impairment of goodwill was identified.

Goodwill increased by $1.1 million in the first quarter of 2009 due to the acquisition of ICC. Additional goodwill in the amount of $254,000 was included in the first quarter of 2009 related to the acquisition of ONLIC in the fourth quarter of 2008. This arose from an additional tax valuation allowance related to impairments on investments recorded in 2009, which resulted in an assumption change from the original acquisition. During the second quarter of 2009, a tax valuation allowance in the amount of $585,000 was released and reduced goodwill. In the third quarter, goodwill was increased by $213,000 for additional tax valuation allowance. Thus, goodwill was reduced in 2009 by $118,000 related to tax valuation allowances. In addition, goodwill was increased by $19,000 in the second quarter of 2009 as a result of a policy reserve omission at purchase date, which was discovered and recorded in the quarter.

During the third quarter of 2009, the Company discovered an overstatement of ICIC’s policyholder dividend liability that existed at the February 27, 2009 acquisition date in the amount of $328,000. The correction of this error, net of tax of $115,000, was recognized as a reduction of goodwill of $213,000.

Valuation of Investments in Fixed Maturity and Equity Securities

The evaluation of securities for impairments is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings. The risks and uncertainties include changes in general economic conditions, the issuer’s financial condition or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period.

Based upon current accounting guidance, investment securities must be classified as held-to-maturity, available-for-sale or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Fixed maturity securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity. Securities not classified as held-to-maturity are classified as available-for-sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and do not affect earnings until realized.

The Company evaluates all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an OTTI exists pursuant to the accounting guidelines. In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial conditions and near-term prospects of the issuer, and the ability and intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the Federal government or its agencies, by government-sponsored agencies, or whether downgrades by bond rating agencies have occurred, and reviews of the issuer’s financial condition.

If management determines that an investment experienced an OTTI, management must then determine the amount of OTTI to be recognized in earnings. If management 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 less any current period loss, the OTTI will be separated into the amount representing the credit loss and the amount related to all other factors. The amount of OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of OTTI related to other factors will be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings will become the new amortized cost basis of the investment. If management intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Any recoveries related to the value of these securities are recorded as an unrealized gain (as other comprehensive income (loss) in shareholders’ equity) and not recognized in income until the security is ultimately sold.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

The Company from time to time may dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.

Premium Revenue and Related Expenses

Premiums on life and accident and health policies are reported as earned when due or, for short duration contracts, over the contract period on a pro rata basis. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the estimated life of the contracts. This matching is accomplished by means of provisions for future benefits and the capitalization and amortization of deferred policy acquisition costs.

Annuities are accounted for in a manner consistent with accounting for interest bearing financial instruments. Our primary annuity products do not include fees or other such charges.

Tax Accounting

A deferred tax asset or deferred tax liability is recorded only if a determination is made that is more-likely-than-not that the tax treatment on which the deferred tax item depends will be sustained in the event of an audit. These determinations inherently involves management’s judgment. In addition, the Company must record a tax valuation allowance with respect to deferred tax assets if it is more-likely-than-not that the tax benefit will not be realized. This valuation allowance is in essence a contra account to the deferred tax asset. Management must determine the portion of the deferred tax asset and resulting tax benefit that may not be realized based upon judgment of expected outcomes. Due to significant estimates utilized in establishing the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record adjustments to the valuation allowance in future reporting periods. Such a charge could have a material adverse effect on our results of operations, financial condition and capital position.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

The nature of our business exposes our investments to market risk. Market risk is the risk of loss that may occur when changes in interest rates and public equity prices adversely affect the value of our invested assets. Interest rate risk is our primary market risk exposure. Substantial and sustained increases and decreases in market interest rates can affect the fair value of our investments. The fair value of our fixed maturity portfolio generally increases when interest rates decrease and decreases when interest rates increase.

Market Risk Related to Interest Rates

Our exposure to interest rate changes results from our significant holdings of fixed maturity investments, which comprised over 84.7% of our investment portfolio as of September 30, 2009. These investments are mainly exposed to changes in U.S. Treasury rates. Our fixed maturities investments include U.S. Government-sponsored enterprises, U.S. Government bonds, securities issued by government agencies, and corporate bonds. Approximately 70.8% of the fixed maturities we owned at September 30, 2009 are instruments of U.S. Government-sponsored enterprises, or are backed by U.S. Government agencies.

To manage interest rate risk, we perform periodic projections of asset and liability cash flows to evaluate the potential sensitivity of our investments and liabilities. We assess interest rate sensitivity with respect to our available-for-sale fixed maturities investments using hypothetical test scenarios that assume either upward or downward 100 basis point shifts in the prevailing interest rates.

We performed a sensitivity analysis, as of December 31, 2008, for our interest rate sensitive assets. The changes in fair values of our fixed maturity and equity securities as of September 30, 2009 were within the expected range of this analysis.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Changes in interest rates typically have a sizable effect on the fair values of our fixed maturities and equity securities. The interest rate of the ten-year U.S. Treasury bond increased to 3.3% as of September 30, 2009 from 2.2% at December 31, 2008. We continue to manage our investment portfolio in a conservative manner. Despite the current financial crisis, our fixed maturity portfolio with a fair value of $539.8 million generated unrealized gains of $1.8 million as of September 30, 2009 compared to unrealized losses of $8.9 million on the fixed maturity portfolio with a fair value of $485.2 million at December 31, 2008. The equity security portfolio with a fair value of $52.9 million generated unrealized gains of $10.5 million as of September 30, 2009 as compared to unrealized gains of $0.1 million on the equity security portfolio with a fair value of $43.0 million at December 31, 2008.

The following table summarizes our investment portfolio and the net unrealized gains and losses as of the periods indicated.

	September 30, 2009							December 31, 2008
					Net							Net
					Unrealized							Unrealized
	Amortized		Fair		Gains			Amortized		Fair		Gains
	Cost		Value		(Losses)			Cost		Value		(Losses)
	(In thousands)
Fixed maturities, available-for-sale	$	335,817		339,290		3,473			494,034		485,155		(8,879	)
Fixed maturities, held-to-maturity		202,197		200,496		(1,701	)		—		—		—
Total fixed maturities	$	538,014		539,786		1,772			494,034		485,155		(8,879	)
Total equity securities	$	42,414		52,894		10,480			42,908		43,000		92

There are no fixed maturities or other investments that we classify as trading instruments. At September 30, 2009 and December 31, 2008, we had no investments in derivative instruments, nor did we have any subprime or collateralized debt obligation risk.

Market Risk Related to Equity Prices

Changes in the level or volatility of equity prices affect the value of equity securities we hold as investments. However, our equity investments portfolio was only 8.3% of our total investments at September 30, 2009. Thus, we believe that potential significant decreases in the equity markets would not have a material adverse impact on our total investment portfolio, although impairments of the portfolio would adversely affect our net income.

Item 4. CONTROLS AND PROCEDURES

The Company has established disclosure controls and procedures to ensure, among other things, that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the financial reports and to the other members of the senior management and the Board of Directors.

The Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for establishing and maintaining the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon an evaluation at the end of the period, the CEO and CFO concluded that the disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

During the nine months ended September 30, 2009, there have been no changes that materially affect, or are reasonably likely to affect, the Company’s internal controls over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) under the Exchange Act).

42

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are a defendant in a lawsuit originally filed on August 6, 1999 in the Texas District Court, Austin, Texas, now styled Citizens Insurance Company of America, Citizens, Inc., and Harold E. Riley v. Fernando Hakim Daccach, in which a class was originally certified by the trial court and affirmed by the Court of Appeals for the Third District of Texas. We appealed the grant of class status to the Texas Supreme Court, which on March 2, 2007, reversed the Court of Appeal’s affirmation of the trial court’s class certification order, decertified the class and remanded the case to the trial court for further proceedings consistent with the Texas Supreme Court’s opinion. As a result, no class action is presently certified, and plaintiffs’ counsel is seeking to recertify the class. In order to recertify the class, the lead plaintiff must establish that he is qualified to represent the purported class and that the res judicata effect of a class action will not have a deleterious effect on the putative class members. The underlying lawsuit alleges that certain life insurance policies we 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. We believe the lawsuit is without merit and intend to continue a vigorous defense in any remaining proceedings, including any class recertification. If the class is recertified, we would likely be further exposed to costly and time-consuming litigation, and an adverse judgment could have a material adverse effect on our results of operations and financial condition. The case is now before the Texas District Court judge for an analysis of evidence presented to determine if it warrants recertification of a class.

Security Plan Fire Insurance Company (“SPFIC”) is a defendant in a suit styled The State of Louisiana v. AAA Insurance, or Road Home Litigation, which was filed in the Civil District Court for the Parish of Orleans on August 23, 2007 by the state of Louisiana as subrogee/assignee of the insureds of more than 200 different insurance companies. The suit was filed to recover money that the state of Louisiana paid to certain insureds under the Louisiana Road Home Program for damages resulting from Hurricanes Katrina and Rita. The suit was removed to the United States District Court for the Eastern District of Louisiana on September 11, 2007 and appeals of the removal have been denied. In March 2009, the trial court judge dismissed all bad faith claims asserted against the defendants, including SPFIC. He also dismissed all claims for flood damage and all claims asserted under Louisiana’s Valued Policy Law. Despite the District Court’s recent rulings, the Road Home Litigation is still in the early stages of litigation, and no discovery has yet occurred. Therefore, it is not possible to evaluate how many claims relate to SPFIC, or the potential exposure to SPFIC. However, in the event of an adverse outcome, the potential exposure to SPFIC could be significant.

In addition to the legal proceedings described above, we may from time to time be subject to a variety of legal and regulatory actions relating to our future, current and past business operations, including, but not limited to:

• disputes over insurance coverage or claims adjudication;

• regulatory compliance with insurance and securities laws in the United States and in foreign countries;

• disputes with our marketing firms, consultants and employee agents over compensation and termination of contracts and related claims;

• disputes regarding our tax liabilities;

• disputes relative to reinsurance and coinsurance agreements; and

• disputes relating to businesses acquired and operated by us.

In the absence of countervailing considerations, we would expect to defend any such claims vigorously. However, in doing so, we could incur significant defense costs, including not only attorneys’ fees and other direct litigation costs, but also the expenditure of substantial amounts of management time that otherwise would be devoted to our business. If we suffer an adverse judgment as a result of any claim, it could have a material adverse effect on our business, results of operations and financial condition.

43

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Item 1A. Risk Factors

There are no updates to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, except as noted below.

We are subject to extensive governmental regulation in the United States, which increases our costs of doing business and could restrict the conduct of our business.

We are subject to extensive regulation and supervision in U.S. jurisdictions wherein we do business, as well as anti-money laundering regulations adopted under the U.S. Patriot Act. Insurance company regulation is generally designed to protect the interests of policyholders, with substantially lesser protections to shareholders of the regulated insurance companies. To that end, laws of the various states in which we do business establish insurance regulatory agencies with broad powers with respect to such things as: licensing companies to transact business; mandating capital and surplus requirements; regulating trade and claims practices; approving policy forms; and restricting companies’ ability to enter and exit markets.

The capacity for an insurance company’s growth in premiums is partially a function of its required statutory surplus. Maintaining appropriate levels of statutory surplus, as measured by statutory accounting practices prescribed or permitted by a company’s state of domicile, is considered important by insurance regulatory authorities. Failure to maintain required levels of statutory surplus could result in increased regulatory scrutiny and enforcement action by regulatory authorities. See the Liquidity and Capital Resources section of this report for additional disclosure regarding risk-based capital levels for the Company’s insurance subsidiaries.

Most insurance regulatory authorities have relatively broad discretion to grant, renew, suspend and revoke licenses and approvals, and could preclude or temporarily suspend us from carrying on some or all of our activities, including acquisitions of other insurance companies, require us to add capital to our insurance company subsidiaries, or fine us. If we are unable to maintain all required licenses and approvals, or if our insurance business is determined not to comply fully with the wide variety of applicable laws and regulations, including the U.S. Patriot Act, or a relevant authority’s interpretation of the laws and regulations, our revenues, results of operations and financial condition could be materially adversely affected.

Unexpected losses in future reporting periods may require us to adjust the valuation allowance against our deferred tax assets.

Due to significant unrealized losses and realized OTTI losses in our investment portfolio as of December 31, 2008, we recorded a deferred tax asset (“DTA”) as of December 31, 2008, as well as established a valuation allowance of $7.7 million relative to that asset. The valuation allowance was established based on facts, circumstances and information available at the reporting date, which indicated it was more likely than not that some or all of the DTA would not be realized.

Currently, we evaluate our DTA quarterly for recoverability based on available evidence. This process involves management’s judgment about assumptions, which are subject to change from period to period due to tax rate changes or variances between our projected operating performance and our actual results. Ultimately, future adjustments to the DTA valuation allowance, if any, will be determined based upon changes in the expected realization of the net deferred tax assets. The realization of the deferred tax assets depends on the existence of sufficient taxable income in either the carry back or carry forward periods under applicable tax law. Due to significant estimates utilized in establishing the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record adjustments to the valuation allowance in future reporting periods. Such a charge could have a material adverse effect on our results of operation, financial condition and capital position.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

44

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number			The following exhibits are filed herewith:
	3.1		Restated and Amended Articles of Incorporation (a)
	3.2		Bylaws (b)
	4.1		Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (c)
	10.1		Self-Administered Automatic Reinsurance Agreement — Citizens Insurance Company of America and Riunione Adriatica di Sicurta, S.p.A. (d)
	10.2		Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life Insurance Company and Citizens Insurance Company of America, as amended (e)
	10.3		Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services Agreement dated March 9, 2004, between Citizens Insurance Company of America and Texas International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and among Citizens Insurance Company of America, Texas International Life Insurance Company and Wells Fargo Bank, N.A. (f)
	10.4		Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services Agreement dated March 9, 2004, between Combined Underwriters Life Insurance Company and Texas International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and among Combined Underwriters Life Insurance Company, Texas International Life Insurance Company and Wells Fargo Bank, N.A. (g)
	10.5	(a)	Securities Purchase Agreement dated July 12, 2004 among Citizens, Inc., Mainfield Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and Smithfield Fiduciary LLC (h)
	10.5	(b)	Registration Rights Agreement dated July 12, 2004 among Citizens, Inc., Mainfield Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and Smithfield Fiduciary LLC (h)
	10.5	(c)	Unit Warrant dated July 12, 2004, to Mainfield Enterprises, Inc. (h)
	10.5	(d)	Unit Warrant dated July 12, 2004, to Steelhead Investments Ltd. (h)
	10.5	(e)	Unit Warrant dated July 12, 2004, to Portside Growth and Opportunity Fund (h)
	10.5	(f)	Unit Warrant dated July 12, 2004, to Smithfield Fiduciary LLC (h)
	10.5	(g)	Warrant to Purchase Class A Common Stock to Mainfield Enterprises, Inc. (h)
	10.5	(h)	Warrant to Purchase Class A Common Stock to Steelhead Investments Ltd. (h)
	10.5	(i)	Warrant to Purchase Class A Common Stock to Portside Growth and Opportunity Fund (h)

45

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2009

Exhibit Number			The following exhibits are filed herewith:
	10.5	(j)	Warrant to Purchase Class A Common Stock to Smithfield Fiduciary LLC (h)
	10.5	(k)	Subordination Agreement among Regions Bank, the Purchasers and Citizens, Inc. dated July 12, 2004 (h)
	10.5	(l)	Non-Exclusive Finder’s Agreement dated September 29, 2003, between Citizens, Inc. and the Shemano Group, Inc. (h)
	10.6		Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of America and Converium Reinsurance (Germany) Ltd. (i)
	10.7		Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of America and Scottish Re Worldwide (England) (j)
	10.8		Self-Administered Automatic Reinsurance Agreement — CICA Life Insurance Company of America and Scor Global Life U.S. Re Insurance Company (k)*
	10.9		Self-Administered Automatic Reinsurance Agreement — CICA Life Insurance Company of America and Mapfre Re Compania de Reaseguros, S.A. (l)*
	11		Statement re: Computation of per share earnings (see financial statements)
	21		Subsidiaries of the Registrant (m)
	31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
	31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
	32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*
	32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*

*	Filed herewith.
(a)	Filed on March 15, 2004 with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 2003 as Exhibit 3.1, and incorporated herein by reference.
(b)	Filed on March 31, 1999 with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 1998, as Exhibit 3.2, and incorporated herein by reference.
(c)	Filed on July 15, 2004, with the Registrant’s Current Report on Form 8-K as Exhibit 4.1, and incorporated herein by reference.
(d)	Filed as Exhibit 10.8 with the Registration Statement on Form S-4, SEC File No. 333-16163, on November 14, 1996 and incorporated herein by reference.
(e)	Filed on April 9, 1997 as Exhibit 10.9 with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 1996, Amendment No. 1, and incorporated herein by reference.
(f)	Filed on March 22, 2004 as Exhibit 10.8 of the Registrant’s Current Report on Form 8-K, and incorporated herein by reference.
(g)	Filed on March 22, 2004 as Exhibit 10.9 of the Registrant’s Current Report on Form 8-K, and incorporated herein by reference.
(h)	Filed on July 15, 2004 as part of Exhibit 10.12 with the Registrant’s Current Report on Form 8-K, and incorporated herein by reference.
(i)	Filed on March 31, 2005, with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 2004, as Exhibit 10.10(m), and incorporated herein by reference.
(j)	Filed on March 31, 2005, with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 2004, as Exhibit 10.10(n), and incorporated herein by reference.
(k)	Filed on November 6, 2009, with the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2009, as Exhibit 10.8(k), and incorporated herein by reference.
(l)	Filed on November 6, 2009, with the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2009, as Exhibit 10.9(l), and incorporated herein by reference.
(m)	Filed on August 7, 2009 with the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2009, as Exhibit 21, incorporated herein by reference.

46

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CITIZENS, INC.
By:	/s/ Harold E. Riley
	Harold E. Riley
	Chairman and Chief Executive Officer
By:	/s/ Kay E. Osbourn
	Kay E. Osbourn
	Vice President, Chief Financial Officer, Principal Accounting Officer and Treasurer

Date: November 6, 2009

47

EX-10.8

Exhibit 10.8

AUTOMATIC YRT REINSURANCE
AGREEMENT

(hereinafter referred to as the “Agreement”)

between

CICA LIFE INSURANCE COMPANY OF AMERICA

of

Denver, Colorado

(hereinafter referred to as the “Company” and “you”)

and

SCOR GLOBAL LIFE U.S. RE INSURANCE COMPANY

of

Plano, TX

(hereinafter referred to as the “Reinsurer”, “we”, and “us”)

SCOR — CIA Life Treat Eff 1-1-09 FINAL

Page 1 of 34

TABLE OF CONTENTS

ARTICLE I — PREAMBLE	4
1. PARTIES TO THIS AGREEMENT	4
2. EFFECTIVE DATE	4
3. REGULATORY COMPLIANCE	4
4. CONSTRUCTION	4
5. ENTIRE AGREEMENT	4
6. SEVERABILITY	5
7. SURVIVAL	5
8. NON-WAIVER	5
ARTICLE II — REINSURANCE COVERAGE	6
1. SCOPE OF COVERAGE	6
2. AUTOMATIC REINSURANCE	6
3. FOREIGN RISKS	7
4. FACULTATIVE REINSURANCE	8
5. BASIS OF REINSURANCE	8
ARTICLE III — PROCEDURES	9
1. AUTOMATIC REINSURANCE	9
2. FACULATATIVE REINSURANCE	9
3. POLICY EXPENSES	9
4. REFERENCE MATERIALS	9
ARTICLE IV — LIABILITY	10
1. LIABILITY	10
2. COMMENCEMENT OF AUTOMATIC LIABILITY	10
3. COMMENCEMENT OF FACULATIVE LIABILITY	10
4. CONDITIONAL RECEIPT LIABILITY	10
5. CONTINUATION OF LIABILITY	11
6. SALE, ASSIGNMENT, OR TRANSFER OF COVERAGE	11
ARTICLE V — REINSURANCE RATES AND PAYMENTS	12
1. REINSURANCE RATES	12
2. CURRENCY	12
3. PAYMENTS	12
4. PREMIUM TAX	13
5. DACTAXELECTION	13
6. EXPERIENCE REFUND	14
ARTICLE VI — CHANGES TO THE REINSURANCE	15
1. CHANGES TO THE UNDERLYING POLICY	15
2. INCREASES	15
3. EXTENDED TERM AND REDUCED PAID-UP INSURANCE	15
4. REDUCTIONS AND TERMINATIONS	15
5. REINSTATEMENTS	16
6. CONVERSIONS, EXCHANGES, AND REPLACEMENTS	16

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Page 2 of 34

ARTICLE VII — RECAPTURE	18
1. RETENTION LIMIT INCREASES	18
2. BASIS OF RECAPTURE	18
3. METHOD OF RECAPTURE	18
ARTICLE VIII — CLAIMS	20
1. NOTICE OF CLAIM	20
2. SETTLEMENT OF CLAIMS	20
3. CONTESTED CLAIMS	20
4. CLAIM EXPENSES	21
5. OTHER NON-CLAIM LITIGATION EXPENSES	21
6. MISSTATEMENT OF AGE OR SEX	22
7. EXTRA-CONTRACTUAL DAMAGES	22
ARTICLE IX — OFFSET	23
ARTICLE X — ERRORS AND OMISSIONS	24
ARTICLE XI — DISPUTE RESOLUTION AND ARBITRATION	25
1. DISPUTE RESOLUTION	25
2. BASIS FOR ARBITRATION	25
3. ARBITARTION PROCEEDINGS	25
ARTILE XII — INSOLVENCY	27
ARTICLE XIII — INSPECTION OF RECORDS	28
ARTICLE XIV — LETTER OF CREDIT	29
1. RESERVE CREDIT	29
2. LETTER OF CREDIT DRAW	29
ARTICLE XV — CONFIDENTIALITY	30
ARTICLE XVI — HOMICIDE BENEFIT LIMITATION	31
ARTICLE XVII — DURATION OF AGREEMENT	32
ARTICLE XVIII — INTERMEDIARY CLAUSE	33
ARTICLE XIX — EXECUTION OF THE AGREEMENT	34

SCOR — CIA Life Treat Eff 1-1-09 FINAL

Page 3 of 34

ARTICLE I — PREAMBLE

1.	PARTIES TO THIS AGREEMENT
	This Agreement is for indemnity reinsurance and is solely between the Company and the Reinsurer (hereinafter referred to collectively as the “parties”). The acceptance of risks under this Agreement will create no right or legal relationship whatsoever between the Reinsurer and the insured, owner, beneficiary, or any other person having an interest of any kind in any insurance policy or other contract reinsured under this Agreement.
	This Agreement will be binding upon the parties and their respective successors and assigns.
2.	EFFECTIVE DATE
	This Agreement is effective at 12:01 A.M. on the Effective Date shown in Exhibit A.I and covers policies issued on and after that date. You may backdate policy issue dates for no more than six months prior to the Effective Date.
3.	REGULATORY COMPLIANCE
	Each party warrants that, to the best of its knowledge, it has secured all necessary federal and state licenses and approvals and that it is operating in compliance with federal and state insurance laws and regulations.
	The parties intend that the Company will receive full statutory reserve credit in its state of domicile for the business reinsured hereunder. The parties agree to make all reasonable efforts to ensure that this is accomplished.
	The Company represents that to the best of its knowledge and belief it is, and shall use its best efforts to continue to be, in substantial compliance in all material respects with all laws, regulations, and judicial and administrative orders applicable to the business reinsured under this Agreement, including but not limited to the maintenance of an effective anti-money laundering policy (hereinafter referred to collectively as the “Law”). Neither party shall be required to take any action that would result in it being in violation of the Law, which for purposes of companies subject to U.S. regulation shall include requirements enforced by the U.S. Treasury Department Office of Foreign Asset Control. The parties acknowledge and agree that a claim under this Agreement is not payable if payment would cause the Reinsurer to be in violation of the Law. Should either party discover that a reinsurance payment has been made in violation of the Law, it shall notify the other party and the parties shall cooperate in order to take all necessary corrective actions, including but not limited to the return of payment to the Reinsurer.
4.	CONSTRUCTION
	The rights and obligations under this Agreement will be construed and administered in accordance with the laws of your state of domicile stated in Exhibit A.II.
5.	ENTIRE AGREEMENT
	This Agreement constitutes the entire agreement between the parties with respect to the business reinsured hereunder. There are no other understandings or agreements between the parties regarding the terms of reinsurance other than as expressed herein.

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Page 4 of 34

	Any change or modification to this Agreement will be null and void unless made by written amendment, attached to this Agreement and signed by both parties.
6.	SEVERABILITY
	If any provision of this Agreement is determined to be invalid or unenforceable, such determination will not impair or affect the validity or the enforceability of the remaining provisions of this Agreement.
7.	SURVIVAL
	All provisions of this Agreement will survive its’ termination to the extent necessary to carry out its purposes or to ascertain and enforce both parties’ rights or obligations hereunder existing at the time of termination.
8.	NON-WAIVER
	No waiver by either party of any violation or default by the other party in the performance of any term or condition of this Agreement will be construed to be a waiver by such party of any subsequent violation or default in the performance of the same or any other term or condition of this Agreement. The failure of either party to enforce any part of this Agreement will not constitute a waiver by such party of its rights to do so, nor will it be deemed to be an act of ratification or consent.

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Page 5 of 34

ARTICLE II — REINSURANCE COVERAGE

1.	SCOPE OF COVERAGE
	This Agreement applies to the individually underwritten ordinary life insurance policies and supplementary benefits and riders attached thereto (hereinafter referred to collectively as “policies”) listed in Exhibit A.III, Business Covered. You must have directly issued such policies in accordance with your normal new business underwriting guidelines, including a statement of good health, as shown in Exhibit A-I, Forms, Manuals, & Issue Rules, in accordance with your normal conditional receipt guidelines as shown in Exhibit D-I, Internal Conditional Receipt Procedures, and in accordance with the premium rates and policy forms as provided to us.
	This Agreement does not cover the following unless specified elsewhere in this Agreement:

1.1	Non-contractual conversions, rollovers, exchanges, or group conversions as provided in Article VI.6, Conversions, Exchanges, and Replacements;
1.2	Business issued under any special program that you offer, including but not limited to experimental underwriting or limited retention programs (e.g. cancer, diabetes, aviation, or coronary risks) or under a program where full current evidence of insurability, consistent with the amount of insurance, is not obtained, or where conventional selection criteria are not applied in underwriting the risk (e.g. simplified issue, guaranteed issue, COLI-type products, etc.);
1.3	Any conversion of a previously issued policy that had been reinsured with another reinsurer; and
1.4	Any business issued to an insured who is not a citizen or permanent resident of the United States, its possessions, or Canada, except as specified in Article II.3, Foreign Risks below.

2.	AUTOMATIC REINSURANCE
	On or after the Effective Date of this Agreement, you will automatically cede to us our share of the policies covered under this Agreement. We will automatically accept such reinsurance provided that:

2.1	You have retained the amount stipulated under Retention Limits shown in Exhibit A.VI according to the age and mortality rating of the insured at the time of underwriting;
2.2	The total of the new reinsurance required, and the amount already reinsured on that life under this Agreement and all other life agreements between the parties, does not exceed the Automatic Acceptance Limits shown in Exhibit A.VII;
2.3	The risk is not characterized as a jumbo risk as defined in Exhibit A.VIII, Jumbo Risk;
2.4	The application is on a life for which you have not submitted an application on a facultative basis (excluding facultative applications you submitted for excess of your automatic binding capacity) to us or any other reinsurer unless the original reason for submitting the application facultatively no longer applies; and

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Page 6 of 34

2.5 The policy has been issued using your normal new business underwriting guidelines. A policy which has been issued as a “business decision” is not eligible for automatic reinsurance unless the parties have agreed in advance to the basis for making such business decisions. A “business decision” is any situation where a policy is issued outside of your normal new business underwriting guidelines and includes, but is not limited to:

a. Issuing a policy at a rating or risk class that is lower than would be justified by your normal new business underwriting guidelines;

b. Issuing a policy for an amount of insurance that is higher than would be justified by your normal new business underwriting guidelines and cash with application procedures;

c. issuing a policy that would be a decline or postpone according to your normal new business underwriting guidelines.

	You may submit policies not meeting the above criteria to us for our consideration on a facultative basis.
	You will notify us in writing if you modify your Retention Limits shown in Exhibit A.VI. We reserve the right to amend the Automatic Acceptance Limits shown in Exhibit A.VII if this occurs, or if you participate in other arrangements to secure additional automatic binding capacity. You may not reinsure the amount you retain on business covered by this Agreement, on any basis, without prior notification to us.
	This Agreement is based on information which you have provided to us. You agree to give us prior written notice of changes in your issue limits, underwriting guidelines and other information that directly affects reinsurance hereunder. We reserve the right to modify our reinsurance terms as a result of such changes, as specified in Exhibit A-I, Forms, Manuals, & Issue Rules.
3.	FOREIGN RISKS
	We will accept reinsurance automatically on policies issued to United States citizens living or working in foreign countries outside of the United States, to foreign nationals residing in foreign countries, and to non-U.S. citizens of foreign countries who are visiting the United States on temporary visas of at least two (2) years duration, provided the following conditions are met:

3.1	The parties have reached prior agreement on the foreign countries (i.e. countries other than the United States, its possessions, or Canada) to ,be included, as well as whether reinsurance will be accepted with or without a surcharge per the agreed guidelines shown in Exhibit A-I, Forms, Manuals, & Issue Rules;
3.2	The total of the new reinsurance required, and the amount already reinsured on the life under this Agreement and all other life agreements between the parties, does not exceed the Automatic Acceptance Limits for foreign risks shown in Exhibit A.VII;
3.3	The risk is not characterized as a jumbo risk as defined in Exhibit A.VIII, Jumbo Risk;

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Page 7 of 34

3.4	The insured is not involved in private aviation outside of the United States; and
3.5	The insured is not a member of the armed forces, a government official, an editor or journalist, a missionary, a political figure or a member of a political figure’s family, a security personnel, a member of the judiciary, nor a trade union official.

	You may submit risks not meeting the above criteria to us for our consideration on a facultative basis.
4.	FACULTATIVE REINSURANCE
	If you receive an application for a policy covered under this Agreement that does not meet the automatic coverage criteria listed in Articles 11.2, Automatic Reinsurance, and rr.3, Foreign Risks, above, you may submit the application to us facultatively for our consideration. Such facultative applications will be limited to the plans listed in Exhibit A.IX, Facultative Submissions.
	Other relevant terms and conditions of this Agreement will apply to those facultative offers we make which are accepted by you.
5.	BASIS OF REINSURANCE
	Life reinsurance will be ceded on the Yearly Renewable Term plan for the net amount at risk on the portion of the original policy that is reinsured with us. The policies we accept either automatically or facultatively will hereinafter be referred to as the “reinsured policies.” The net amount at risk for any policy period will be calculated as shown in Exhibit C.II, Net Amount at Risk.
	Any differences in the basis of reinsurance or calculation of the net amount at risk for riders or supplementary benefits ceded with life benefits will be shown in Exhibit C.II, Net Amount at Risk.
	You will not require us to participate in policy loans, dividends or cash values on any policies reinsured under this Agreement.

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Page 8 of 34

ARTICLE III — PROCEDURES

1.	AUTOMATIC REINSURANCE
	New reinsurance ceded, or changes to existing reinsurance, will be shown on your periodic billing report(s), subject to Article V, Reinsurance Rates and Payments and Exhibit B, Reinsurance Administration, and therefore, no individual cession notification will be necessary for placing automatic reinsurance.
	Upon our request, you will send to us copies of the application, underwriting papers and other papers on a life reinsured automatically under this Agreement.
2.	FACULTATIVE REINSURANCE
	To submit a risk for facultative consideration, you must send ns a copy of your reinsurance application form. Unless specified elsewhere in this Agreement, you must also send us copies of all underwriting evidence that is available for risk assessment including, but not limited to, copies of the application for insurance, medical examiners’ reports, attending physicians’ statements, inspection reports, and any other papers having a bearing on the insurability of the risk. You will also notify us of any outstanding underwriting requirements at the time of the facultative submission. Any subsequent information you receive that is pertinent to the risk assessment will be transmitted to us immediately.
	After considering the reinsurance application and related papers, we will promptly inform you of our underwriting decision. If we give you an unconditional offer to reinsure a risk, you must notify our underwriting department of your acceptance of our offer during the lifetime of the insured and before the expiration date of our offer, followed by documentation of such placement on your periodic billing report. Our offer will remain open until the expiry date shown in our offer. All offers of reinsurance made by us will terminate one hundred and twenty (120) days from the date on which the offer was made, unless otherwise specified by us in the facultative offer or if we have extended the offer in writing for a further period. You may request an extension of the expiry date, but a decision to extend will be made at our sole discretion.
	If you submit any risk to more than one reinsurer for consideration, facultative placement will be based on the order of the responses received from the reinsurers to whom the risk is submitted, first offer in, taking into consideration the amount and rating you requested.
3.	POLICY EXPENSES
	You will bear the expenses of all medical examinations, inspection fees and other charges incurred in connection with policy issues, reinstatements or reentries.
4.	REFERENCE MATERIALS
	Upon request, you will provide us with any reference materials, which we may require for proper administration of reinsurance ceded under this Agreement, as specified in Exhibit A-I, Forms, Manuals, and Issue Rules.

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ARTICLE IV — LIABILITY

1.	LIABILITY
	Unless specified elsewhere in this Agreement, our liability for reinsured policies is restricted to our share of your liability as limited by the terms and conditions of the particular policy under which you are liable.
	Our liability to you on a reinsured policy will be based on the total net amount at risk at the time of the insured’s death. Our liability shall be equal to the total net amount at risk under the policy, multiplied by the ratio of our liability to the total net amount at risk under the policy at the time the reinsurance is placed. The parties will share proportionately in any decrease in the net amount at risk under the policy.
	We may terminate our liability for any policies for which reinsurance premium payments are in arrears, according to the terms set out in Article V, Reinsurance Rates and Payments.
2.	COMMENCEMENT OF AUTOMATIC LIABILITY
	Our liability for reinsurance placed automatically with us will begin and end simultaneously with your liability for the underlying policy on which reinsurance is based, subject to the provisions of Article VI, Changes to the Reinsurance and Article VII, Recapture.
3.	COMMENCEMENT OF FACULTATIVE LIABILITY
	If you have submitted a facultative application to us, our liability will begin simultaneously with yours if (i) our underwriting department has received notice from you, during the lifetime of the insured and before the expiry date of our offer, that our offer has been accepted, and (ii) you have placed the policy with the insured/owner in accordance with your normal new business placement practices and guidelines before the expiry date of our offer. You will have until the expiry date shown in our final offer to place the policy with the insured/owner, after which time our offer will expire unless we explicitly state in writing that the offer is extended for some further period.
	If our offer depends on your approval of further information about the risk, we will have no liability unless you have requested and approved the information and documented your policy file accordingly.
4.	CONDITIONAL RECEIPT LIABILITY
	Reinsurance coverage under a Conditional Receipt or a Temporary Insurance Agreement will be limited to amounts you accept which are within your usual cash-with-application procedures. A copy of your Conditional Receipt or Temporary Insurance Agreement form is included as Exhibit B-l.
	Our liability for losses under the terms of any Conditional Receipt or Temporary Insurance Agreement is subject to the limits shown in Exhibit D, Conditional Receipt Liability.
	We will have no liability for Conditional Receipts or Temporary Insurance Agreements which are issued or administered outside of your normal guidelines and procedures as specified in Exhibit D-l, Internal Conditional Receipt Procedures.

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5.	CONTINUATION OF LIABILITY
	Notwithstanding any other provision in this Agreement, continuation of our liability is conditioned on your payment of reinsurance rates as shown in Article V, Reinsurance Rates and Payments and is subject to Article VI, Changes to the Reinsurance and Article VII, Recapture.
6.	SALE, ASSIGNMENT, OR TRANSFER OF COVERAGE
	You may sell, assign or transfer policies reinsured under this Agreement to another insurer. Should the sale, assignment or transfer occur, you agree to require that the other insurer assume all of your rights and obligations under this Agreement. We may object to any such transfer, assumption or sale that would result in a material adverse economic impact to us. If we so object, then the parties agree to mutually calculate a termination charge that shall be paid upon the sale, assignment or transfer, and this Agreement shall be terminated with respect to all policies so sold, assigned, or transferred.
	If we sell, assign, or transfer reinsurance under this Agreement to another reinsurer, we agree to require that the other reinsurer assume all of our rights and obligations under this Agreement. You may object to any such transfer, assumption, or sale that would result in a material adverse economic impact to you. If you so object, then you may recapture all reinsurance on policies sold, assigned, or transferred without penalty to you. The parties agree to mutually calculate an amount to transfer at recapture. The provisions of this section are not intended to preclude us from retroceding the reinsurance on an indemnity basis.

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ARTICLE V — REINSURANCE RATES AND PAYMENTS

1.	REINSURANCE RATES
	Reinsurance premium rates for life insurance and other benefits reinsured under this Agreement are shown in Exhibit C, Reinsurance Rates & Allowances. The reinsurance premium payable for any cession for any accounting period will be calculated on the basis of the net amount at risk reinsured as of that period. The calculation of net amount at risk is described in Exhibit C.II.
	For reasons relating to deficiency reserve requirements, the reinsurance rates shown in Exhibit C, Reinsurance Rates & Allowances cannot be guaranteed for more than one year. Although we anticipate that reinsurance rates shown in Exhibit C will apply indefinitely, we reserve the right to increase them after the first year, but not above the statutory net premium based on the applicable minimum valuation mortality table and maximum valuation interest rate. Any such increase in the reinsurance rates will be based solely on a change in anticipated mortality and will be applied on a consistent basis among all in force business being reinsured on a yearly renewable term basis, where permitted by the terms of the individual agreements.
	If we increase the reinsurance rates on inforce business as described above, and you have not increased your retail premiums or cost of insurance charges on these policies or contracts and you have not changed statutory reserving assumptions (e.g. a change in the “X” factors used to calculate deficiency reserves), you may recapture the business to which the rate increase applies as of the effective date of the rate increase. Such recapture will be subject to a recapture fee to be negotiated by the parties.
	If the original policy is issued with interim insurance, you will pay us a reinsurance rate for the interim period that is the same percentage of the first year premium that the interim period bears to twelve months. The rate that you pay us for the first policy year after the interim period will be calculated on the basis of the full annual reinsurance rate.
2.	CURRENCY
	All transactions under this Agreement will be in United States dollars, unless the parties mutually agree otherwise.
3.	PAYMENTS
	You will self-administer the reporting of your statements of account and the payment of balances due to us as shown in Exhibit B, Reinsurance Administration.
	Your timely payment of reinsurance premiums is a condition precedent to our continued liability for reinsurance covered under this Agreement. Your statements of account and reinsurance premium payments are due within thirty (30) days of the close of each reporting period. If the balance is due you, we will pay you within thirty (30) days of our receipt of the statement.
	We have the right to terminate reinsurance coverage for all policies having reinsurance premiums in arrears. If we elect to exercise this right of termination, we will give you thirty (30) days written notice of our intent to terminate. Such notice will be sent by certified mail. If all reinsurance premiums in arrears, including any that become in arrears during the thirty (30) day notice period, are

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	not paid before the expiration of the notice period, we will be relieved of all liability under those policies as of the last date for which premiums have been paid for each policy. You will continue to be liable for the payment of premiums for the period during which reinsurance was in force prior to the expiration of the thirty (30) day notice period with interest calculated from the due date to the date of payment. The interest rate will be the same rate that you charge for delinquent premiums on your individual life insurance policies.
	You may reinstate coverage on terminated policies at any time within sixty (60) days of the termination date by paying us all balances due with interest, as specified above. Reinstatement will be effective on the date that we receive payment. However, we will have no liability for claims incurred between the termination date and the reinstatement date.
	You will not force termination under the provisions of this Article solely to avoid the provisions regarding recapture in Article VII, Recapture, or for the purpose of transferring the reinsured policies to another reinsurer.
4.	PREMIUM TAX
	Details of any reimbursement that we will pay to you for our share of premium taxes that you are required to pay on business reinsured under this Agreement, if applicable, are shown in Exhibit C.XIII.
5.	DAC TAX ELECTION
	The parties agree to the DAC Tax Election pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations effective December 29, 1992 under Section 848 of the Internal Revenue Code of 1986, as amended. This election will be effective at the inception of this Agreement and for all subsequent taxable years for which this Agreement remains in effect.
	The terms used in this Section are defined in Regulation Section 1.848-2. The term “net consideration” will refer to either net consideration as defined in Section 1.848-2(f) or “gross premium and other consideration” as defined in Section 1.848-3(b), as appropriate. The following provisions will apply:

5.1	The party with the net positive consideration for this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1);
5.2	The parties agree to exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency. The parties also agree to exchange information otherwise required by the Internal Revenue Service;
5.3	Each year you will submit a schedule to us by May I with your calculation of the net consideration for the preceding calendar year. This schedule will be accompanied by a statement signed by an officer of the Company stating that you will report such net consideration in your tax return for the preceding calendar year;

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5.4	We may contest such calculations by providing an alternative calculation to you by May 31. If we do not so notify you, you will report the net consideration as determined by you in your tax return for the previous calendar year; and
5.5	If we contest your calculation of the net consideration, the parties will act in good faith to reach an agreement as to the correct amount within thirty (30) days of the date we submit our alternative calculation. If the parties reach agreement on the amount of the net consideration, each party shall report such amount in its respective tax return for the previous calendar year.

	Each party represents and warrants that it is subject to United States taxation under either the provisions of subchapter L of Chapter 1 or the provisions of subpart F of subchapter N of Chapter 1 of the Internal Revenue Code of 1986, as amended.
6.	EXPERIENCE REFUND
	Details of any experience refund payable to you, if applicable, are shown in Exhibit C.XV.

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ARTICLE VI — CHANGES TO THE REINSURANCE

1.	CHANGES TO THE UNDERLYING POLICY
	You will give us prompt written notification of any policy changes which affect the reinsurance provided under this Agreement. Our approval is required if the underwriting classification of a risk reinsured on a facultative basis is changed. Our approval is also required for any other changes that are not specifically covered under this Agreement.
2.	INCREASES
	If the amount of insurance on a plan reinsured under this Agreement is increased as a result of a noncontractual change and you underwrite the increase in accordance with your customary standards and procedures, the increase will be considered new reinsurance under this Agreement. Our approval is required if the original policy was reinsured on a facultative basis or if the new amount will cause the reinsured amount on the life to exceed either the Automatic Acceptance Limits or the Jumbo Limit shown in Exhibit A, Reinsurance Coverage.
	For policies reinsured on an automatic basis, increases in amount resulting from contractual policy provisions will be reinsured only up to the Automatic Acceptance Limits shown in Exhibit A.VII.
	For policies reinsured on a facultative basis, increases in amount resulting from contractual policy provisions will be reinsured only up to the ultimate amount shown in our facultative offer.
	Reinsurance premiums for contractual increases will be on a point-in-scale basis from the original issue date and issue age of the policy.
3.	EXTENDED TERM AND REDUCED PAID-UP INSURANCE
	If any policy reinsured under this Agreement lapses and either extended term insurance or reduced paid-up insurance is elected under the terms of the policy, reinsurance will be continued in accordance with the provisions of the underlying policy. Reinsurance payments for the adjusted policy will be calculated on the basis of the original issue age of the insured and the duration of the original policy at the time the adjustment became effective.
4.	EDUCTIONS AND TERMINATIONS
	If the amount of insurance on a reinsured policy is reduced and

4.1	Reinsurance is on an excess of retention basis, the amount of reinsurance on that life will be reduced, effective on the same date, by the full amount of the reduction under the original policy. If the amount of the insurance terminated equals or exceeds the amount of reinsurance, the full amount of reinsurance will be terminated; or
4.2	Reinsurance is on a first-dollar quota share basis, the amount of reinsurance on that life will be reduced, effective on the same date, by the same proportion as the reduction under the original policy.

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	The reduction will first apply to any reinsurance on the policy being reduced and then, if applicable, in chronological order starting with the earliest policy date to any reinsurance on the other policies in force on the life. However, you will not be required to assume a risk for an amount in excess of your regular retention for the age at issue and the mortality rating of the policy under which reinsurance is being terminated.
	If reinsurance is in force with more than one reinsurer, the reduction will be applied to all reinsurers on a pro rata basis according to the amounts of reinsurance originally ceded.
	If a reinsured policy is lapsed or terminated, the reinsurance will also terminate effective on the same date. If any in force policy is lapsed or terminated and the lapse or termination results in your maintaining less than your full retention, then the procedures specified above for reductions will apply.
	We will refund, without interest, all unearned reinsurance premiums resulting from reductions, terminations or changes.
5.	REINSTATEMENTS
	If a policy reinsured automatically is reinstated in accordance with its terms and in accordance with your rules and procedures, reinsurance will be reinstated automatically under the terms of this Agreement. You will notify us of the reinstatement on your periodic statement of account. You will send us copies of your reinstatement papers only upon request.
	You will need our prior review and approval for reinstatement of any facultative reinsurance unless all of the following apply:

5.1	You have kept your full retention as shown in Exhibit A.VI, Retention Limits on the policy;
5.2	The reinsured amount falls within the Automatic Acceptance Limits shown in Exhibit A.VII; and
5.3	The reinstatement occurs within ninety (90) days of the lapse date.

	To request our approval, you must send us prompt written notice of your intention to reinstate the policy along with copies of the reinstatement papers required by your standard rules and procedures. The reinsurance will be reinstated at the same time as the policy, subject to our written approval of the reinstatement.
	You will notify us of all reinstatements on your periodic statement of account, and you will pay all reinsurance rates due from the date of reinstatement to the date of the current statement of account, including a proportionate share of any interest collected. Thereafter, payment of reinsurance rates will be in accordance with Article V, Reinsurance Rates and Payments.
6.	CONVERSIONS, EXCHANGES, AND REPLACEMENTS
	You will promptly notify us if a reinsured policy is converted, exchanged, or internally replaced. If the conversion, exchange, or replacement is not considered to be new business, as defined below, we will continue to reinsure the new policy (hereinafter referred to as a “continuation”) in an amount determined on the same basis as, but not to exceed, the amount reinsured on the original policy as of

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the date of conversion, exchange, or replacement, unless mutually agreed otherwise. If we reinsure the plan to which the original policy is converting, either under this Agreement or under a different agreement, reinsurance premium rates for the continuation will be those contained in the agreement that covers the plan to which the original policy is converting. However, if we do not reinsure the new plan, reinsurance will be on a YRT basis using rates to be mutually agreed upon between the parties. Reinsurance premiums and any expense allowances for continuations will be based on the issue date of the original policy and the original issue age of the insured, i.e. on a point-in-scale basis.

A conversion, exchange, or replacement will be considered to be new business provided all of the following criteria are met:

6.1	The new policy is underwritten in accordance with your normal new business guidelines and procedures;
6.2	A full first-year commission is paid on the new policy; and
6.3	The new policy provides for the maximum normal periods of suicide and contestability protection permitted in the state in which the new policy is issued.

	Unless mutually agreed otherwise, any policies that had been reinsured with another reinsurer and which convert to a plan covered under this Agreement will not be reinsured with us.
7.	LAST SURVIVOR
	With respect to any joint and last survivor policy covered hereunder, your retention shall be equal to the lowest amount which you could have retained according to the retention limits shown in Exhibit A.VI, Retention Limits and taking into account amounts issued and retained on either of the lives insured under the joint and last survivor policy.
	You may reinsure the policy automatically if both insureds fall within the appropriate age limits and underwriting classes as specified in Exhibit A.
	In the event the joint and last survivor policy permits the insureds to split the joint and last survivor policy into separate policies on the life of each insured, the new policies shall be considered continuations as described in Section 6 above. The reinsured premiums for the individual policies shall be in accordance with the terms specified in Exhibit C, Reinsurance Rates & Allowances.
	In the event one life is determined to be uninsurable, as described in the guidelines shown in Exhibit A-I, Forms, Manuals, and Issue Rules, the provisions of this Article will continue to apply with the following exceptions:

7.1	You may reinsure the policy automatically only if the insurable life falls within the Automatic Acceptance Limits for the appropriate age and underwriting class as specified in Exhibit A.VII, Automatic Limits.
7.2	You need only apply your standard underwriting rules and practices to the insurable life.

The reinsurance premium shall be computed on the age and premium rates applicable to the insured risk.

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ARTICLE VII — RECAPTURE

1.	RETENTION LIMIT INCREASES
	If you change your retention limits as shown in Exhibit A.VI, you will provide us with written notice of the new retention limits and the effective date.
	A change in your retention limits will not affect the reinsured policies in force at the time of the change except as specifically provided elsewhere in this Agreement. Furthermore, such a change will not affect the Automatic Acceptance Limits shown in Exhibit A.VII, unless agreed between the patties.
2.	BASIS OF RECAPTURE
	If you increase your Dollar Retention Limit as shown in Exhibit A.VI, you may reduce the amount of reinsurance in force through recapture. Reinsured policies are eligible for recapture if:

2.1	You give us written notice of your intention to recapture within ninety (90) days of the effective date of the retention increase;
2.2	You have maintained your full retention for the age and mortality rating of the insured from the time that the policy was issued. No recapture shall be allowed for polices for which you established special or reduced retention limits unless you have retained your full retention on existing or concurrent polices on the insured life;
2.3	You retain all business that is recaptured under the terms of this Article; and
2.4	The policy has been in force under this Agreement for the Recapture Period shown in Exhibit C.XN. The recapture period will always be measured from the original policy issue date. For converted policies the recapture period will be the greater of the recapture period in the original reinsurance agreement, or the recapture period in the agreement to which the policy has converted, measured from the effective date of the original policy.

3.	METHOD OF RECAPTURE
	If you have given us written notice of your intent to recapture, and the date when recapture will begin, you may reduce the amount of reinsurance on eligible policies on the next following policy anniversary date, subject to the following:

3.1	All eligible policies must be recaptured;
3.2	The amount eligible for recapture is equal to the difference between (i) the amount you originally retained, and (ii) the amount you would have retained, based on the Percentage Retention Limit in effect at the time of issue, had the new Dollar Retention Limit been in effect at the time of issue;
3.3	If you increase the Percentage Retention Limit shown in Exhibit A.VI, but not the Dollar Retention Limit, recapture will not be allowed;

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3.4	If portions of a reinsured policy eligible for recapture were placed with more than one reinsurer, you must allocate the amount recaptured on a pro rata basis to the total outstanding reinsurance; and
3.5	If at the time of recapture the insured is disabled and premiums are being waived under any type of Disability Benefit Rider, only the life benefit will be recaptured. The reinsured portion of the Disability Benefit Rider will remain in force until the policy is returned to premium-paying status, at which time it will be eligible for recapture.

If you omit or overlook the recapture of any eligible policy or policies, our acceptance of your reinsurance premium payments after the date the recapture should have taken place will not cause us to be liable under this Agreement for the amount of the risk that should have been recaptured. We will be liable only for a refund of those payments received, without interest.

If your retention increase is due to your acquisition of, or by another company, or your merger or other organizational affiliation with another company, no immediate recapture will be allowed. However, you may recapture eligible policies once the Recapture Period set out in Exhibit C.XIV has expired.

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ARTICLE VIII — CLAIMS

1.	NOTICE OF CLAIM
	When you receive notice that a claim has been incurred on a policy reinsured under this Agreement, you must promptly notify us. You will also forward copies of the death certificate, proof of payment, and the claimant’s statement when the amount reinsured with us exceeds $250,000. For a claim incurred during the contestable period of the policy, you will forward copies of the application, underwriting papers, and any investigative reports. You will provide copies of other claim documents upon our request.
	For joint and last survivor business, if you are notified of first death under a reinsured policy, you must in turn notify us immediately.
	We will have no liability for claims on policies not meeting the coverage requirements of the applicable sections of Article II, Reinsurance Coverage.
2.	SETTLEMENT OF CLAIMS
	For us to have any liability, reinsured claims must meet the following conditions.

2.1	The total reinsurance recoverable will not exceed your total contractual liability under the terms of the policy less the amount you have retained;
2.2	The claim will be adjudicated according to the standard procedures you apply to all claims, whether reinsured or not, and on all foreign risk claims whether contestable or not;
2.3	You will conduct a routine investigation on all contestable claims and you will promptly advise us if there are any exceptions; and
2.4	You have not made a business decision to pay a claim that normal claim adjudication practices would indicate is not payable.

	For the settlement of Waiver of Premium Disability or other Disability Rider benefits, we will pay you our proportional share of the gross premium waived annually. Refunds of unearned reinsurance premiums less applicable expense allowances or discounts will be reflected on your billing statement.
	We will accept your good faith decision on any non-contestable claim. We reserve the right to request copies of the application, underwriting files, and any investigative reports for any non-contestable claim.
	You will consult with us on all contestable claims where the amount reinsured with us exceeds the amount you have retained for the risk. We will notify you promptly of our decision.
3.	CONTESTED CLAIMS
	You will notify us within fifteen (15) days of your decision if you intend to contest, compromise, or litigate a claim involving reinsurance under this Agreement. You will also provide us with all information relating to the claim. We will notify you within fifteen (15) days of our receipt of all documents requested whether we will participate or not in the contest. If we decline to participate in

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	the contest, we will immediately pay you the full amount of reinsurance due. Once we have paid our reinsurance liability, we will not be liable for legal and/or investigative expenses associated with the contest, compromise, or litigation, nor will we share in any refund that you may receive due to the contesting of the claim.
	If we agree to participate in a contest, compromise, or litigation involving reinsurance, you will give us prompt notice of the commencement of any legal proceedings involving the contested policy and you will promptly furnish us with copies of all documents pertaining to a lawsuit or notice of intent to file a lawsuit by any of the claimants or parties to the policy. We will share in the payment of legal or investigative expenses relating to a contested claim in the same proportion as our liability bears to your liability. We will not reimburse expenses associated with non-reinsured policies.
	If we participate and your contest, compromise, or litigation results in a reduction in the liability of the contested policy, we will share in the reduction in the same proportion that the amount of reinsurance bore to the amount payable under the terms of the policy on the date of death of the insured. If we participate and your contest, compromise, or litigation results in a dismissal of the claim and a return of the premiums, we will refund all reinsurance premiums that you have paid to us.
4.	CLAIM EXPENSES
	We will pay our proportionate share of the following expenses arising out of the settlement or litigation of a claim, providing that the expenses are reasonable:

4.1	Investigative expenses;
4.2	Attorneys’ fees;
4.3	Penalties and interest imposed automatically against you by statute and rising solely out of a judgment rendered against you in a suit for policy benefits; and
4.4	Interest paid to the claimant on death benefit proceeds according to your practices.

Our share of claim expenses will be in the same proportion that our liability bears to your liability.

You will be solely responsible for payment of the following claim expenses, which are not considered items of net reinsurance liability:

4.5	Routine administrative expenses for the home office or elsewhere, including your employees’ salaries; and
4.6	Expenses incurred in connection with any dispute or contest arising out of a conflict in claims of entitlement to policy proceeds or benefits which you admit are payable.

5.	OTHER NON-CLAIM LITIGATION EXPENSES
	This Agreement does not provide for reimbursement of legal expenses other than as specified in Article VIIIA. It is recognized that non-claim related legal actions involving reinsured policies may occur. These may include, but are not limited to, live rescissions, market/agent conduct, or class action suits. No reimbursement will be made for these actions without our prior written consent.

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6.	MISSTATEMENT OF AGE OR SEX
	If the amount of insurance on any policy reinsured under this Agreement is adjusted due to a misstatement of age or sex being established after the death of an insured life, the parties will share in such adjustment in proportion to their respective net amounts at risk under the policy.
7.	EXTRA-CONTRACTUAL DAMAGES
	We will not be liable for nor will we pay any extra-contractual damages, including but not limited to compensatory or punitive damages which are awarded against you, or which you pay voluntarily, in settlement of a dispute or claim where damages were awarded as the result of any direct or indirect act, omission, or course of conduct undertaken by you or your agents or representatives, in connection with any aspect of the policies reinsured under this Agreement.
	We will, however, pay our share of statutory penalties awarded against you in connection with claims covered under this Agreement if we elected to join in any contest of the coverage in question.
	We recognize that special circumstances may arise in which we should participate to the extent permitted by law in certain assessed damages. These circumstances are difficult to describe or define in advance but could include those situations in which we were an active party in the act, omission, or course of conduct of the original issuing company, which ultimately resulted in the assessment of the damages. The extent of our participation in these circumstances is dependent upon a good-faith assessment of the relative culpability in each case; but all factors being equal, the parties would generally share in the same proportion as their relative net liabilities in the division of any such assessment. For the purposes of this provision, the following definitions shall apply:
	“Compensatory Damages” are those amounts which are awarded to compensate for actual damages sustained, and are not awarded as a penalty, nor fixed in amount by statute.
	“Punitive Damages” are those damages which are awarded as a penalty, the amount of which is not governed, nor fixed, by statute.
	“Statutory Penalties” are those amounts which are awarded as a penalty, but fixed in amount by statute.

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ARTICLE IX — OFFSET

The parties agree to offset any balance(s), whether on account of premiums, claims, allowances, expenses, or any other amount(s) due from one party to the other party under this Agreement or any other reinsurance agreement between them. It is agreed that claims will not be offset until the claim procedures outlined in the Article VIII, Claims have been followed.

The right of offset will not be affected or diminished because of the insolvency of either party.

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ARTICLE X — ERRORS AND OMISSIONS

An error or omission occurs when either party fails to comply with any of the terms of this Agreement. If such failure to comply results from an unintentional misunderstanding, oversight, or clerical error, and if upon discovery of the error or omission by either party the other is promptly notified, then this Agreement will not be deemed to be abrogated thereby. If such failure to comply results from any other type of act or if the other party is not promptly notified when the error or omission occurs, this Agreement in its entirety may be subject to termination unless both parties reach an agreement to the contrary.

When an act is determined to be an error or omission, the party whose act caused the error or omission will take the remedial actions or steps necessary to restore both parties to the position they would have held or occupied if no such error or omission had occurred. If that is not possible, the parties will endeavor in good faith to promptly resolve the situation in a manner that is fair and reasonable and most closely approximates the intent of the parties as evidenced by this Agreement. However, in no event will our liability be extended to cover policies that do not satisfy the parameters of this Agreement or to exceed the limits provided herein.

If either party discovers that you did not cede reinsurance on a policy that should have been reinsured under this Agreement, you shall take the necessary actions or steps in a reasonable and timely manner to prevent such oversights from recurring in the future. If you fail to take the necessary actions or steps to remedy such a situation, we reserve the right to limit our liability to the amounts reported.

For greater clarity, acts or circumstances which are not considered to be errors or omissions for the purpose of this Article will include, but not be limited to:

10.1	Unresolved, repetitive reporting errors resulting from your neglect or mismanagement. In this situation you will conduct an audit to identify and report all policies requiring correction within ninety (90) days, or a time period mutually agreed upon by the parties. You will pay any premiums due under Article V, Reinsurance Rates and Payments. In the event you fail to make the necessary correction within the time period specified above, we reserve the right to limit our liability. In the event premium refunds are due you, we will pay them without interest;
10.2	Any act, error, omission, or oversight, whether intentional or unintentional, which is the result of your not adhering to your regular requirements in the underwriting, approval, issuance, or administration of the insurance or the associated reinsurance by you, or by your agents or representatives;
10.3	Any failure to arrange for reinsurance under this Agreement due to your practice of conducting a limited search of your records for other prior in force insurance on the same life;
10.4	Facultatively submitted business where you have either not notified us of your acceptance of our unconditional offer within the time period specified in the offer or have incorrectly advised us to close our file; and
10.5	Any error or omission discovered more than seven (7) years following the termination or expiry of the last cession remaining in force under this agreement.

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ARTICLE XI — DISPUTE RESOLUTION AND ARBITRATION

1.	DISPUTE RESOLUTION
	In the event of a dispute arising out of or relating to this Agreement, the parties agree to the following process of dispute resolution.
	Within ten (10) business days after one of the parties has given the other the first written notification of the specific dispute, each of the parties will appoint a designated officer to attempt to resolve the dispute. The officers will meet at a mutually agreeable location as early as possible and as often as necessary, in order to gather and furnish the other with all appropriate and relevant information concerning the dispute. The officers will discuss the problem and will negotiate in good faith without the necessity of any formal arbitration proceedings. During the negotiation process, all reasonable requests made by one officer to the other for information will be honored. The designated officers will decide the specific format for such discussions.
	If the officers cannot resolve the dispute within thirty (30) days of their first meeting, the parties agree that they will submit the dispute to formal arbitration. However, the parties may agree in writing to extend the negotiation period for an additional thirty (30) days.
2.	BASIS FOR ARBITRATION
	The parties understand and agree that the wording and interpretation of this Agreement is based on the usual customs and practices of the insurance and reinsurance industries. While the parties agree to act in good faith in their dealings with each other, it is understood and recognized that situations could arise in which they will not be able to reach an agreement.
3.	ARBITRATION PROCEEDINGS
	To initiate arbitration, either party will notify the other in writing of its intent to arbitrate, stating the nature of the dispute and the remedies sought. The party to which the notice is sent will have fifteen (15) days from receipt to respond confirming its receipt and readiness to arbitrate.
	The arbitration panel, consisting of three past or present officers of life insurance or life reinsurance companies not affiliated with either of the parties in any way, will settle the dispute. Each of the parties will appoint one arbiter within thirty (30) days following the date of the response to the initial arbitration notice. The two appointed arbiters will select a third arbiter within thirty (30) days following the selection of the second arbiter. If the two arbiters cannot agree on a third arbiter, the selection will be made by the Chairman of the American Arbitration Association. Once chosen, the arbiters will decide all substantive and procedural issues by a majority of votes.
	The arbitration proceedings will be conducted according to the Commercial Arbitration Rules of the American Arbitration Association which are in effect at the time the arbitration begins.

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The arbitration will take place m Plano, Texas unless the parties mutually agree otherwise.

Within sixty (60) days after the beginning of the arbitration proceedings the arbitrators will issue a written decision on the dispute and a statement of any award to be paid as a result. The decision will be based on the terms and conditions of this Agreement as well as the usual customs and practices of the insurance and reinsurance industries, rather than on strict interpretation of the law.

The parties may agree to extend any of the negotiation or arbitration periods shown in this Article.

Unless otherwise decided by the arbitrators, the parties will share equally in all expenses resulting from the arbitration, including the fees and expenses of the arbitrators, except that each of the parties will be responsible for its respective attorneys’ fees.

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ARTICLE XII — INSOLVENCY

A party to this Agreement will be deemed “insolvent” when it:

12.1	Applies for or consents to the appointment of a receiver, rehabilitator, conservator, liquidator or statutory successor of its properties or assets; or
12.2	Is adjudicated as bankrupt or insolvent; or
12.3	Files or consents to the filing of a formal application for dissolution, liquidation, or similar action under state law or statute; or
12.4	Becomes the subject of an order to rehabilitate or an order to liquidate as defined by the insurance code of the jurisdiction of the party’s domicile.

If you are judged insolvent, we will pay all reinsurance under this Agreement directly to you, your liquidator, receiver, or statutory successor on the basis of your liability under the policy or policies reinsured without diminution because of your insolvency. It is understood, however, that in the event of your insolvency, the liquidator, receiver, or statutory successor will give us written notice of a pending claim on a policy reinsured within a reasonable time after the claim is filed in the insolvency proceedings. While the claim is pending, we may investigate and interpose, at our own expense, in the proceedings, where the claim is to be adjudicated, any defense that we may deem available to you, your liquidator, receiver, or statutory successor. It is further understood that the expense we incur will be chargeable, subject to court approval, against you as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to you solely as a result of the defense we have undertaken. Where two or more reinsurers are involved in the same claim, and a majority in interest elects to interpose defense to the claim, the expenses will be apportioned in accordance with the terms of the reinsurance agreement as though you had incurred the expense. We will be liable only for the amounts reinsured and will not be or become liable for any amounts or reserves to be held by you on reinsured policies.

If we are judged insolvent, we will be considered in default under this Agreement and you may terminate this Agreement immediately for new business. The notification period required under Article XVI, Duration of Agreement shall be waived under such circumstances. Amounts due us will be paid directly to our liquidator, receiver or statutory successor without diminution because of our insolvency.

In the event of insolvency, the right of Offset afforded under Article IX will remain in full force and effect to the extent permitted by applicable law.

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ARTICLE XIII — INSPECTION OF RECORDS

We, or our duly appointed representatives, will have access to your original papers, records, books, files, and other documents relating directly or indirectly to the reinsurance coverage under this Agreement for the purpose of inspecting, auditing, and photocopying those records. You will provide such access at the office(s) where such records are kept during reasonable business hours.

Provided there is business in force under this Agreement, our right of access will survive the termination of this Agreement.

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ARTICLE XIV — LETTER OF CREDIT

1.	RESERVE CREDIT
	For those states in which we are not licensed, admitted, or authorized and you are consequently not permitted to take reserve credit on your Annual Statement for all or a part of the reinsurance ceded to us, we will furnish a clean, unconditional, evergreen and irrevocable Letter of Credit. The Letter of Credit will be issued by a bank which is neither a parent, subsidiary, nor an affiliate of the parties (hereinafter referred to as the “designated bank”) in an amount equal to the reserves ceded to us. The designated bank must be organized or licensed in the United States and must appear on the list of approved banks published by the Securities Valuation Office of the National Association of Insurance Commissioners.
	We will bear the cost of the Letter of Credit.
2.	LETTER OF CREDIT DRAW
	It is understood that you may draw on the Letter of Credit at any time, notwithstanding any other provisions herein. You undertake to use and apply any amount, which you may draw upon the Letter of Credit, pursuant to the terms of this Agreement under which the Letter of Credit is held, and only for the following purposes:

2.1	To reimburse you for our share of any net obligations currently due and payable under this Agreement;
2.2	To the extent required by law, to fund an account representing our net obligations currently due and payable under this Agreement; or
2.3	To pay other amounts due you under this Agreement.

You agree to return to us any amounts drawn on Letters of Credit which are in excess of the actual amounts required for 2.1 or 2.2 above, or in the case of 2.3 above, any amounts that are subsequently determined not to be due.

The amounts drawn under any Letter of Credit will be applied without diminution because of the insolvency of either party. The designated bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by you or the disposition of funds withdrawn, except to see that withdrawals are made only upon the order of your properly authorized representatives.

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ARTICLE XV — CONFIDENTIALITY

The parties agree to treat all customer and proprietary information as confidential. Customer information includes, but is not limited to, medical, financial, and other personal information about proposed, current, and former policyowners, insureds, applicants, and beneficiaries of policies you issue. Proprietary information includes, but is not limited to, business plans and trade secrets, mortality and lapse studies, underwriting manuals and guidelines, applications and contract forms, and the specific terms and conditions of this Agreement.

You recognize that we may need to share certain information with auditors, regulators, and retrocessionaires in the normal course of conducting business.

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ARTICLE XVI — HOMICIDE BENEFIT LIMITATION

The Company limits the death benefit to the return of all premiums paid if the cause of death is homicide, except in some countries as listed in Exhibit F, where the Company currently pays the full death benefit in the case of homicide if the insured was not involved in the commission of a crime. In the event of a death by homicide, the parties will be liable for the payment of this limited death benefit in the same proportion as had the death not been by homicide. As of the date of this Agreement, it is agreed by both parties that the Company may offer the less strict version of this benefit limitation in all remaining countries that are classified as au “A” risk, as shown in Exhibit E.

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ARTICLE XV — DURATION OF AGREEMENT

This Agreement is unlimited as to its duration. Either of the parties may terminate this Agreement for new reinsurance at any time by giving at least ninety (90) days written notice of termination to the other party, unless mutually agreed otherwise.

During the notification period, you will continue to cede and we will continue to accept policies covered under the terms of this Agreement.

Our liability for reinsured policies, which are in force as of the effective date of the termination, will continue as long as you continue to pay reinsurance premiums as specified in Article V, Reinsurance Rates and Payments.

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ARTICLE XVIII — INTERMEDIARY CLAUSE

Intermediaries & Consultants, Inc., One Progress Plaza, Suite 270, St. Petersburg, Florida, 33701 is hereby designated as the Intermediary negotiating this Agreement for all business hereunder. Unless otherwise agree upon, all communications (including, but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through Intermediaries & Consultants, Inc. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

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ARTICLE XIX — EXECUTION OF THE AGREEMENT

This Agreement has been made in duplicate and is hereby executed by both parties.

CICA Life Insurance Company of America
Denver, Colorado

/s/ Jonathan Pollio

Jonathan Pollio

Vice President, Chief Actuary

May 6, 2009

SCOR Global Life U.S. Re Insurance Company
Plano, Texas

/s/ Robert W. Foster, Jr.	/s/ Jack Clabough
Robert W. Foster, Jr.	Jack Clabough
Vice President, Pricing	Vice President, Chief Underwriter
April 28, 2009	April 16, 2009

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EX-10.9

Exhibit 10.9

AUTOMATIC YRT REINSURANCE
AGREEMENT

(hereinafter referred to as the “Agreement”)

between

CICA Life Insurance Company of America

of

Denver, Colorado

(hereinafter referred to as the “Company” and “you”)

and

Mapfre Re Compania de Reaseguros, S.A.

of

Madrid, Spain

(hereinafter referred to as the “Reinsurer”, “we”, and “us”)

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TABLE OF CONTENTS

ARTICLE I — PREAMBLE	4
1. PARTIES TO THIS AGREEMENT	4
2. EFFECTIVE DATE	4
3. REGULATORY COMPLIANCE	4
4. CONSTRUCTION	4
5. ENTIRE AGREEMENT	4
6. SEVERABILITY	5
7. SURVIVAL	5
8. NON-WAIVER	5
ARTICLE II — REINSURANCE COVERAGE	6
1. SCOPE OF COVERAGE	6
2. AUTOMATIC REINSURANCE	6
3. FOREIGN RISKS	7
4. FACULTATIVE REINSURANCE	8
5. BASIS OF REINSURANCE	8
ARTICLE III — PROCEDURES	9
1. AUTOMATIC REINSURANCE	9
2. FACULATATIVE REINSURANCE	9
3. POLICY EXPENSES	9
4. REFERENCE MATERIALS	9
ARTICLE IV — LIABILITY	10
1. LIABILITY	10
2. COMMENCEMENT OF AUTOMATIC LIABILITY	10
3. COMMENCEMENT OF FACULATIVE LIABILITY	10
4. CONDITIONAL RECEIPT LIABILITY	10
5. CONTINUATION OF LIABILITY	11
6. SALE, ASSIGNMENT, OR TRANSFER OF COVERAGE	11
ARTICLE V — REINSURANCE RATES AND PAYMENTS	12
1. REINSURANCE RATES	12
2. CURRENCY	12
3. PAYMENTS	12
4. PREMIUM TAX	13
5. DACTAXELECTION	13
6. EXPERIENCE REFUND	14
ARTICLE VI — CHANGES TO THE REINSURANCE	15
1. CHANGES TO THE UNDERLYING POLICY	15
2. INCREASES	15
3. EXTENDED TERM AND REDUCED PAID-UP INSURANCE	15
4. REDUCTIONS AND TERMINATIONS	15
5. REINSTATEMENTS	16
6. CONVERSIONS, EXCHANGES, AND REPLACEMENTS	16

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ARTICLE VII — RECAPTURE	18
1. RETENTION LIMIT INCREASES	18
2. BASIS OF RECAPTURE	18
3. METHOD OF RECAPTURE	18
ARTICLE VIII — CLAIMS	20
1. NOTICE OF CLAIM	20
2. SETTLEMENT OF CLAIMS	20
3. CONTESTED CLAIMS	20
4. CLAIM EXPENSES	21
5. OTHER NON-CLAIM LITIGATION EXPENSES	21
6. MISSTATEMENT OF AGE OR SEX	22
7. EXTRA-CONTRACTUAL DAMAGES	22
ARTICLE IX — OFFSET	23
ARTICLE X — ERRORS AND OMISSIONS	24
ARTICLE XI — DISPUTE RESOLUTION AND ARBITRATION	25
1. DISPUTE RESOLUTION	25
2. BASIS FOR ARBITRATION	25
3. ARBITARTION PROCEEDINGS	25
ARTICLE XII — INSOLVENCY	27
ARTICLE XIII — INSPECTION OF RECORDS	28
ARTICLE XIV — LETTER OF CREDIT	29
1. RESERVE CREDIT	29
2. LETTER OF CREDIT DRAW	29
ARTICLE XV — CONFIDENTIALITY	30
ARTICLE XVI — HOMICIDE BENEFIT LIMITATION	31
ARTICLE XVII — DURATION OF AGREEMENT	32
ARTICLE XVIII — INTERMEDIARY CLAUSE	33
ARTICLE XIX — EXECUTION OF THE AGREEMENT	34

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ARTICLE I — PREAMBLE

1.	PARTIES TO THIS AGREEMENT
	This Agreement is for indemnity reinsurance and is solely between the Company and the Reinsurer (hereinafter referred to collectively as the “parties”). The acceptance of risks under this Agreement will create no right or legal relationship whatsoever between the Reinsurer and the insured, owner, beneficiary, or any other person having an interest of any kind in any insurance policy or other contract reinsured under this Agreement. This Agreement will be binding upon the parties and their respective successors and assigns.
2.	EFFECTIVE DATE
	This Agreement is effective at 12:01 A.M. on the Effective Date shown in Exhibit A.I and covers policies issued on and after that date. You may backdate policy issue dates for no more than six months prior to the Effective Date.
3.	REGULATORY COMPLIANCE
	Each party warrants that, to the best of its knowledge, it has secured all necessary federal and state licenses and approvals and that it is operating in compliance with federal and state insurance laws and regulations.
	The parties intend that the Company will receive full statutory reserve credit in its state of domicile for the business reinsured hereunder. The parties agree to make all reasonable efforts to ensure that this is accomplished.
	The Company represents that to the best of its knowledge and belief it is, and shall use its best efforts to continue to be, in substantial compliance in all material respects with all laws, regulations, and judicial and administrative orders applicable to the business reinsured under this Agreement, including but not limited to the maintenance of an effective anti-money laundering policy (hereinafter referred to collectively as the “Law”). Neither party shall be required to take any action that would result in it being in violation of the Law, which for purposes of companies subject to U.S. regulation shall include requirements enforced by the U.S. Treasury Department Office of Foreign Asset Control. The parties acknowledge and agree that a claim under this Agreement is not payable if payment would cause the Reinsurer to be in violation of the Law. Should either party discover that a reinsurance payment has been made in violation of the Law, it shall notify the other party and the parties shall cooperate in order to take all necessary corrective actions, including but not limited to the return of payment to the Reinsurer.
4.	CONSTRUCTION
	The rights and obligations under this Agreement will be construed and administered in accordance with the laws of your state of domicile stated in Exhibit A.II.
5.	ENTIRE AGREEMENT
	This Agreement constitutes the entire agreement between the parties with respect to the business reinsured hereunder. There are no other understandings or agreements between the parties regarding the terms of reinsurance other than as expressed herein.

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	Any change or modification to this Agreement will be null and void unless made by written amendment, attached to this Agreement and signed by both parties.
6.	SEVERABILITY
	If any provision of this Agreement is determined to be invalid or unenforceable, such determination will not impair or affect the validity or the enforceability of the remaining provisions of this Agreement.
7.	SURVIVAL
	All provisions of this Agreement will survive its’ termination to the extent necessary to carry out its purposes or to ascertain and enforce both parties’ rights or obligations hereunder existing at the time of termination.
8.	NON-WAIVER
	No waiver by either party of any violation or default by the other party in the performance of any term or condition of this Agreement will be construed to be a waiver by such party of any subsequent violation or default in the performance of the same or any other term or condition of this Agreement. The failure of either party to enforce any part of this Agreement will not constitute a waiver by such party of its rights to do so, nor will it be deemed to be an act of ratification or consent.

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ARTICLE II — REINSURANCE COVERAGE

1.	SCOPE OF COVERAGE
	This Agreement applies to the individually underwritten ordinary life insurance policies and supplementary benefits and riders attached thereto (hereinafter referred to collectively as “policies”) listed in Exhibit A.III, Business Covered. You must have directly issued such policies in accordance with your normal new business underwriting guidelines, including a statement of good health, as shown in Exhibit A-I, Forms, Manuals, & Issue Rules, in accordance with your normal conditional receipt guidelines as shown in Exhibit D-I, Internal Conditional Receipt Procedures, and in accordance with the premium rates and policy forms as provided to us.
	This Agreement does not cover the following unless specified elsewhere in this Agreement:

1.1	Non-contractual conversions, rollovers, exchanges, or group conversions as provided in Article VI.6, Conversions, Exchanges, and Replacements;
1.2	Business issued under any special program that you offer, including but not limited to experimental underwriting or limited retention programs (e.g. cancer, diabetes, aviation, or coronary risks) or under a program where full current evidence of insurability, consistent with the amount of insurance, is not obtained, or where conventional selection criteria are not applied in underwriting the risk (e.g. simplified issue, guaranteed issue, COLI-type products, etc.);
1.3	Any conversion of a previously issued policy that had been reinsured with another reinsurer; and
1.4	Any business issued to an insured who is not a citizen or permanent resident of the United States, its possessions, or Canada, except as specified in Article II.3, Foreign Risks below.

2.	AUTOMATIC REINSURANCE
	On or after the Effective Date of this Agreement, you will automatically cede to us our share of the policies covered under this Agreement. We will automatically accept such reinsurance provided that:

2.1	You have retained the amount stipulated under Retention Limits shown in Exhibit A.VI according to the age and mortality rating of the insured at the time of underwriting;
2.2	The total of the new reinsurance required, and the amount already reinsured on that life under this Agreement and all other life agreements between the parties, does not exceed the Automatic Acceptance Limits shown in Exhibit A.VII;
2.3	The risk is not characterized as a jumbo risk as defined in Exhibit A.VIII, Jumbo Risk;
2.4	The application is on a life for which you have not submitted an application on a facultative basis (excluding facultative applications you submitted for excess of your automatic binding capacity) to us or any other reinsurer unless the original reason for submitting the application facultatively no longer applies; and

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2.5 The policy has been issued using your normal new business underwriting guidelines. A policy which has been issued as a “business decision” is not eligible for automatic reinsurance unless the parties have agreed in advance to the basis for making such business decisions. A “business decision” is any situation where a policy is issued outside of your normal new business underwriting guidelines and includes, but is not limited to:

a. Issuing a policy at a rating or risk class that is lower than would be justified by your normal new business underwriting guidelines;

b. Issuing a policy for an amount of insurance that is higher than would be justified by your normal new business underwriting guidelines and cash with application procedures;

c. issuing a policy that would be a decline or postpone according to your normal new business underwriting guidelines.

	You may submit policies not meeting the above criteria to us for our consideration on a facultative basis.
	You will notify us in writing if you modify your Retention Limits shown in Exhibit A.VI. We reserve the right to amend the Automatic Acceptance Limits shown in Exhibit A.VII if this occurs, or if you participate in other arrangements to secure additional automatic binding capacity. You may not reinsure the amount you retain on business covered by this Agreement, on any basis, without prior notification to us.
	This Agreement is based on information which you have provided to us. You agree to give us prior written notice of changes in your issue limits, underwriting guidelines and other information that directly affects reinsurance hereunder. We reserve the right to modify our reinsurance terms as a result of such changes, as specified in Exhibit A-I, Forms, Manuals, & Issue Rules.
3.	FOREIGN RISKS
	We will accept reinsurance automatically on policies issued to United States citizens living or working in foreign countries outside of the United States, to foreign nationals residing in foreign countries, and to non-U.S. citizens of foreign countries who are visiting the United States on temporary visas of at least two (2) years duration, provided the following conditions are met:

3.1	The parties have reached prior agreement on the foreign countries (i.e. countries other than the United States, its possessions, or Canada) to ,be included, as well as whether reinsurance will be accepted with or without a surcharge per the agreed guidelines shown in Exhibit A-I, Forms, Manuals, & Issue Rules;
3.2	The total of the new reinsurance required, and the amount already reinsured on the life under this Agreement and all other life agreements between the parties, does not exceed the Automatic Acceptance Limits for foreign risks shown in Exhibit A.VII;
3.3	The risk is not characterized as a jumbo risk as defined in Exhibit A.VIII, Jumbo Risk;

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3.4	The insured is not involved in private aviation outside of the United States; and
3.5	The insured is not a member of the armed forces, a government official, an editor or journalist, a missionary, a political figure or a member of a political figure’s family, a security personnel, a member of the judiciary, nor a trade union official.

	You may submit risks not meeting the above criteria to us for our consideration on a facultative basis.
4.	FACULTATIVE REINSURANCE
	If you receive an application for a policy covered under this Agreement that does not meet the automatic coverage criteria listed in Articles 11.2, Automatic Reinsurance, and rr.3, Foreign Risks, above, you may submit the application to us facultatively for our consideration. Such facultative applications will be limited to the plans listed in Exhibit A.IX, Facultative Submissions.
	Other relevant terms and conditions of this Agreement will apply to those facultative offers we make which are accepted by you.
5.	BASIS OF REINSURANCE
	Life reinsurance will be ceded on the Yearly Renewable Term plan for the net amount at risk on the portion of the original policy that is reinsured with us. The policies we accept either automatically or facultatively will hereinafter be referred to as the “reinsured policies.” The net amount at risk for any policy period will be calculated as shown in Exhibit C.II, Net Amount at Risk.
	Any differences in the basis of reinsurance or calculation of the net amount at risk for riders or supplementary benefits ceded with life benefits will be shown in Exhibit C.II, Net Amount at Risk.
	You will not require us to participate in policy loans, dividends or cash values on any policies reinsured under this Agreement.

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ARTICLE III — PROCEDURES

1.	AUTOMATIC REINSURANCE
	New reinsurance ceded, or changes to existing reinsurance, will be shown on your periodic billing report(s), subject to Article V, Reinsurance Rates and Payments and Exhibit B, Reinsurance Administration, and therefore, no individual cession notification will be necessary for placing automatic reinsurance.
	Upon our request, you will send to us copies of the application, underwriting papers and other papers on a life reinsured automatically under this Agreement.
2.	FACULTATIVE REINSURANCE
	To submit a risk for facultative consideration, you must send ns a copy of your reinsurance application form. Unless specified elsewhere in this Agreement, you must also send us copies of all underwriting evidence that is available for risk assessment including, but not limited to, copies of the application for insurance, medical examiners’ reports, attending physicians’ statements, inspection reports, and any other papers having a bearing on the insurability of the risk. You will also notify us of any outstanding underwriting requirements at the time of the facultative submission. Any subsequent information you receive that is pertinent to the risk assessment will be transmitted to us immediately.
	After considering the reinsurance application and related papers, we will promptly inform you of our underwriting decision. If we give you an unconditional offer to reinsure a risk, you must notify our underwriting department of your acceptance of our offer during the lifetime of the insured and before the expiration date of our offer, followed by documentation of such placement on your periodic billing report. Our offer will remain open until the expiry date shown in our offer. All offers of reinsurance made by us will terminate one hundred and twenty (120) days from the date on which the offer was made, unless otherwise specified by us in the facultative offer or if we have extended the offer in writing for a further period. You may request an extension of the expiry date, but a decision to extend will be made at our sole discretion.
	If you submit any risk to more than one reinsurer for consideration, facultative placement will be based on the order of the responses received from the reinsurers to whom the risk is submitted, first offer in, taking into consideration the amount and rating you requested.
3.	POLICY EXPENSES
	You will bear the expenses of all medical examinations, inspection fees and other charges incurred in connection with policy issues, reinstatements or reentries.
4.	REFERENCE MATERIALS
	Upon request, you will provide us with any reference materials, which we may require for proper administration of reinsurance ceded under this Agreement, as specified in Exhibit A-I, Forms, Manuals, and Issue Rules.

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ARTICLE IV — LIABILITY

1.	LIABILITY
	Unless specified elsewhere in this Agreement, our liability for reinsured policies is restricted to our share of your liability as limited by the terms and conditions of the particular policy under which you are liable.
	Our liability to you on a reinsured policy will be based on the total net amount at risk at the time of the insured’s death. Our liability shall be equal to the total net amount at risk under the policy, multiplied by the ratio of our liability to the total net amount at risk under the policy at the time the reinsurance is placed. The parties will share proportionately in any decrease in the net amount at risk under the policy.
	We may terminate our liability for any policies for which reinsurance premium payments are in arrears, according to the terms set out in Article V, Reinsurance Rates and Payments.
2.	COMMENCEMENT OF AUTOMATIC LIABILITY
	Our liability for reinsurance placed automatically with us will begin and end simultaneously with your liability for the underlying policy on which reinsurance is based, subject to the provisions of Article VI, Changes to the Reinsurance and Article VII, Recapture.
3.	COMMENCEMENT OF FACULTATIVE LIABILITY
	If you have submitted a facultative application to us, our liability will begin simultaneously with yours if (i) our underwriting department has received notice from you, during the lifetime of the insured and before the expiry date of our offer, that our offer has been accepted, and (ii) you have placed the policy with the insured/owner in accordance with your normal new business placement practices and guidelines before the expiry date of our offer. You will have until the expiry date shown in our final offer to place the policy with the insured/owner, after which time our offer will expire unless we explicitly state in writing that the offer is extended for some further period.
	If our offer depends on your approval of further information about the risk, we will have no liability unless you have requested and approved the information and documented your policy file accordingly.
4.	CONDITIONAL RECEIPT LIABILITY
	Reinsurance coverage under a Conditional Receipt or a Temporary Insurance Agreement will be limited to amounts you accept which are within your usual cash-with-application procedures. A copy of your Conditional Receipt or Temporary Insurance Agreement form is included as Exhibit B-l.
	Our liability for losses under the terms of any Conditional Receipt or Temporary Insurance Agreement is subject to the limits shown in Exhibit D, Conditional Receipt Liability.
	We will have no liability for Conditional Receipts or Temporary Insurance Agreements which are issued or administered outside of your normal guidelines and procedures as specified in Exhibit D-l, Internal Conditional Receipt Procedures.

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5.	CONTINUATION OF LIABILITY
	Notwithstanding any other provision in this Agreement, continuation of our liability is conditioned on your payment of reinsurance rates as shown in Article V, Reinsurance Rates and Payments and is subject to Article VI, Changes to the Reinsurance and Article VII, Recapture.
6.	SALE, ASSIGNMENT, OR TRANSFER OF COVERAGE
	You may sell, assign or transfer policies reinsured under this Agreement to another insurer. Should the sale, assignment or transfer occur, you agree to require that the other insurer assume all of your rights and obligations under this Agreement. We may object to any such transfer, assumption or sale that would result in a material adverse economic impact to us. If we so object, then the parties agree to mutually calculate a termination charge that shall be paid upon the sale, assignment or transfer, and this Agreement shall be terminated with respect to all policies so sold, assigned, or transferred.
	If we sell, assign, or transfer reinsurance under this Agreement to another reinsurer, we agree to require that the other reinsurer assume all of our rights and obligations under this Agreement. You may object to any such transfer, assumption, or sale that would result in a material adverse economic impact to you. If you so object, then you may recapture all reinsurance on policies sold, assigned, or transferred without penalty to you. The parties agree to mutually calculate an amount to transfer at recapture. The provisions of this section are not intended to preclude us from retroceding the reinsurance on an indemnity basis.

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ARTICLE V — REINSURANCE RATES AND PAYMENTS

1.	REINSURANCE RATES
	Reinsurance premium rates for life insurance and other benefits reinsured under this Agreement are shown in Exhibit C, Reinsurance Rates & Allowances. The reinsurance premium payable for any cession for any accounting period will be calculated on the basis of the net amount at risk reinsured as of that period. The calculation of net amount at risk is described in Exhibit C.II.
	For reasons relating to deficiency reserve requirements, the reinsurance rates shown in Exhibit C, Reinsurance Rates & Allowances cannot be guaranteed for more than one year. Although we anticipate that reinsurance rates shown in Exhibit C will apply indefinitely, we reserve the right to increase them after the first year, but not above the statutory net premium based on the applicable minimum valuation mortality table and maximum valuation interest rate. Any such increase in the reinsurance rates will be based solely on a change in anticipated mortality and will be applied on a consistent basis among all in force business being reinsured on a yearly renewable term basis, where permitted by the terms of the individual agreements.
	If we increase the reinsurance rates on inforce business as described above, and you have not increased your retail premiums or cost of insurance charges on these policies or contracts and you have not changed statutory reserving assumptions (e.g. a change in the “X” factors used to calculate deficiency reserves), you may recapture the business to which the rate increase applies as of the effective date of the rate increase. Such recapture will be subject to a recapture fee to be negotiated by the parties.
	If the original policy is issued with interim insurance, you will pay us a reinsurance rate for the interim period that is the same percentage of the first year premium that the interim period bears to twelve months. The rate that you pay us for the first policy year after the interim period will be calculated on the basis of the full annual reinsurance rate.
2.	CURRENCY
	All transactions under this Agreement will be in United States dollars, unless the parties mutually agree otherwise.
3.	PAYMENTS
	You will self-administer the reporting of your statements of account and the payment of balances due to us as shown in Exhibit B, Reinsurance Administration.
	Your timely payment of reinsurance premiums is a condition precedent to our continued liability for reinsurance covered under this Agreement. Your statements of account and reinsurance premium payments are due within thirty (30) days of the close of each reporting period. If the balance is due you, we will pay you within thirty (30) days of our receipt of the statement.
	We have the right to terminate reinsurance coverage for all policies having reinsurance premiums in arrears. If we elect to exercise this right of termination, we will give you thirty (30) days written notice of our intent to terminate. Such notice will be sent by certified mail. If all reinsurance premiums in arrears, including any that become in arrears during the thirty (30) day notice period, are

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	not paid before the expiration of the notice period, we will be relieved of all liability under those policies as of the last date for which premiums have been paid for each policy. You will continue to be liable for the payment of premiums for the period during which reinsurance was in force prior to the expiration of the thirty (30) day notice period with interest calculated from the due date to the date of payment. The interest rate will be the same rate that you charge for delinquent premiums on your individual life insurance policies.
	You may reinstate coverage on terminated policies at any time within sixty (60) days of the termination date by paying us all balances due with interest, as specified above. Reinstatement will be effective on the date that we receive payment. However, we will have no liability for claims incurred between the termination date and the reinstatement date.
	You will not force termination under the provisions of this Article solely to avoid the provisions regarding recapture in Article VII, Recapture, or for the purpose of transferring the reinsured policies to another Reinsurer.
4.	PREMIUM TAX
	Details of any reimbursement that we will pay to you for our share of premium taxes that you are required to pay on business reinsured under this Agreement, if applicable, are shown in Exhibit C.XIII.
5.	DAC TAX ELECTION
	The parties agree to the DAC Tax Election pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations effective December 29, 1992 under Section 848 of the Internal Revenue Code of 1986, as amended. This election will be effective at the inception of this Agreement and for all subsequent taxable years for which this Agreement remains in effect.
	The terms used in this Section are defined in Regulation Section 1.848-2. The term “net consideration” will refer to either net consideration as defined in Section 1.848-2(f) or “gross premium and other consideration” as defined in Section 1.848-3(b), as appropriate. The following provisions will apply:

5.1	The party with the net positive consideration for this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1);
5.2	The parties agree to exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency. The parties also agree to exchange information otherwise required by the Internal Revenue Service;
5.3	Each year you will submit a schedule to us by May I with your calculation of the net consideration for the preceding calendar year. This schedule will be accompanied by a statement signed by an officer of the Company stating that you will report such net consideration in your tax return for the preceding calendar year;

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5.4	We may contest such calculations by providing an alternative calculation to you by May 31. If we do not so notify you, you will report the net consideration as determined by you in your tax return for the previous calendar year; and
5.5	If we contest your calculation of the net consideration, the parties will act in good faith to reach an agreement as to the correct amount within thirty (30) days of the date we submit our alternative calculation. If the parties reach agreement on the amount of the net consideration, each party shall report such amount in its respective tax return for the previous calendar year.

	Each party represents and warrants that it is subject to United States taxation under either the provisions of subchapter L of Chapter 1 or the provisions of subpart F of subchapter N of Chapter 1 of the Internal Revenue Code of 1986, as amended.
6.	EXPERIENCE REFUND
	Details of any experience refund payable to you, if applicable, are shown in Exhibit C.XV.

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ARTICLE VI — CHANGES TO THE REINSURANCE

1.	CHANGES TO THE UNDERLYING POLICY
	You will give us prompt written notification of any policy changes which affect the reinsurance provided under this Agreement. Our approval is required if the underwriting classification of a risk reinsured on a facultative basis is changed. Our approval is also required for any other changes that are not specifically covered under this Agreement.
2.	INCREASES
	If the amount of insurance on a plan reinsured under this Agreement is increased as a result of a noncontractual change and you underwrite the increase in accordance with your customary standards and procedures, the increase will be considered new reinsurance under this Agreement. Our approval is required if the original policy was reinsured on a facultative basis or if the new amount will cause the reinsured amount on the life to exceed either the Automatic Acceptance Limits or the Jumbo Limit shown in Exhibit A, Reinsurance Coverage.
	For policies reinsured on an automatic basis, increases in amount resulting from contractual policy provisions will be reinsured only up to the Automatic Acceptance Limits shown in Exhibit A.VII.
	For policies reinsured on a facultative basis, increases in amount resulting from contractual policy provisions will be reinsured only up to the ultimate amount shown in our facultative offer.
	Reinsurance premiums for contractual increases will be on a point-in-scale basis from the original issue date and issue age of the policy.
3.	EXTENDED TERM AND REDUCED PAID-UP INSURANCE
	If any policy reinsured under this Agreement lapses and either extended term insurance or reduced paid-up insurance is elected under the terms of the policy, reinsurance will be continued in accordance with the provisions of the underlying policy. Reinsurance payments for the adjusted policy will be calculated on the basis of the original issue age of the insured and the duration of the original policy at the time the adjustment became effective.
4.	EDUCTIONS AND TERMINATIONS
	If the amount of insurance on a reinsured policy is reduced and

4.1	Reinsurance is on an excess of retention basis, the amount of reinsurance on that life will be reduced, effective on the same date, by the full amount of the reduction under the original policy. If the amount of the insurance terminated equals or exceeds the amount of reinsurance, the full amount of reinsurance will be terminated; or
4.2	Reinsurance is on a first-dollar quota share basis, the amount of reinsurance on that life will be reduced, effective on the same date, by the same proportion as the reduction under the original policy.

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	The reduction will first apply to any reinsurance on the policy being reduced and then, if applicable, in chronological order starting with the earliest policy date to any reinsurance on the other policies in force on the life. However, you will not be required to assume a risk for an amount in excess of your regular retention for the age at issue and the mortality rating of the policy under which reinsurance is being terminated.
	If reinsurance is in force with more than one reinsurer, the reduction will be applied to all reinsurers on a pro rata basis according to the amounts of reinsurance originally ceded.
	If a reinsured policy is lapsed or terminated, the reinsurance will also terminate effective on the same date. If any in force policy is lapsed or terminated and the lapse or termination results in your maintaining less than your full retention, then the procedures specified above for reductions will apply.
	We will refund, without interest, all unearned reinsurance premiums resulting from reductions, terminations or changes.
5.	REINSTATEMENTS
	If a policy reinsured automatically is reinstated in accordance with its terms and in accordance with your rules and procedures, reinsurance will be reinstated automatically under the terms of this Agreement. You will notify us of the reinstatement on your periodic statement of account. You will send us copies of your reinstatement papers only upon request.
	You will need our prior review and approval for reinstatement of any facultative reinsurance unless all of the following apply:

5.1	You have kept your full retention as shown in Exhibit A.VI, Retention Limits on the policy;
5.2	The reinsured amount falls within the Automatic Acceptance Limits shown in Exhibit A.VII; and
5.3	The reinstatement occurs within ninety (90) days of the lapse date.

	To request our approval, you must send us prompt written notice of your intention to reinstate the policy along with copies of the reinstatement papers required by your standard rules and procedures. The reinsurance will be reinstated at the same time as the policy, subject to our written approval of the reinstatement.
	You will notify us of all reinstatements on your periodic statement of account, and you will pay all reinsurance rates due from the date of reinstatement to the date of the current statement of account, including a proportionate share of any interest collected. Thereafter, payment of reinsurance rates will be in accordance with Article V, Reinsurance Rates and Payments.
6.	CONVERSIONS, EXCHANGES, AND REPLACEMENTS
	You will promptly notify us if a reinsured policy is converted, exchanged, or internally replaced. If the conversion, exchange, or replacement is not considered to be new business, as defined below, we will continue to reinsure the new policy (hereinafter referred to as a “continuation”) in an amount determined on the same basis as, but not to exceed, the amount reinsured on the original policy as of

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the date of conversion, exchange, or replacement, unless mutually agreed otherwise. If we reinsure the plan to which the original policy is converting, either under this Agreement or under a different agreement, reinsurance premium rates for the continuation will be those contained in the agreement that covers the plan to which the original policy is converting. However, if we do not reinsure the new plan, reinsurance will be on a YRT basis using rates to be mutually agreed upon between the parties. Reinsurance premiums and any expense allowances for continuations will be based on the issue date of the original policy and the original issue age of the insured, i.e. on a point-in-scale basis.

A conversion, exchange, or replacement will be considered to be new business provided all of the following criteria are met:

6.1	The new policy is underwritten in accordance with your normal new business guidelines and procedures;
6.2	A full first-year commission is paid on the new policy; and
6.3	The new policy provides for the maximum normal periods of suicide and contestability protection permitted in the state in which the new policy is issued.

	Unless mutually agreed otherwise, any policies that had been reinsured with another reinsurer and which convert to a plan covered under this Agreement will not be reinsured with us.
7.	LAST SURVIVOR
	With respect to any joint and last survivor policy covered hereunder, your retention shall be equal to the lowest amount which you could have retained according to the retention limits shown in Exhibit A.VI, Retention Limits and taking into account amounts issued and retained on either of the lives insured under the joint and last survivor policy.
	You may reinsure the policy automatically if both insureds fall within the appropriate age limits and underwriting classes as specified in Exhibit A.
	In the event the joint and last survivor policy permits the insureds to split the joint and last survivor policy into separate policies on the life of each insured, the new policies shall be considered continuations as described in Section 6 above. The reinsured premiums for the individual policies shall be in accordance with the terms specified in Exhibit C, Reinsurance Rates & Allowances.
	In the event one life is determined to be uninsurable, as described in the guidelines shown in Exhibit A-I, Forms, Manuals, and Issue Rules, the provisions of this Article will continue to apply with the following exceptions:

7.1	You may reinsure the policy automatically only if the insurable life falls within the Automatic Acceptance Limits for the appropriate age and underwriting class as specified in Exhibit A.VII, Automatic Limits.
7.2	You need only apply your standard underwriting rules and practices to the insurable life.

The reinsurance premium shall be computed on the age and premium rates applicable to the insured risk.

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ARTICLE VII — RECAPTURE

1.	RETENTION LIMIT INCREASES
	If you change your retention limits as shown in Exhibit A.VI, you will provide us with written notice of the new retention limits and the effective date.
	A change in your retention limits will not affect the reinsured policies in force at the time of the change except as specifically provided elsewhere in this Agreement. Furthermore, such a change will not affect the Automatic Acceptance Limits shown in Exhibit A.VII, unless agreed between the patties.
2.	BASIS OF RECAPTURE
	If you increase your Dollar Retention Limit as shown in Exhibit A.VI, you may reduce the amount of reinsurance in force through recapture. Reinsured policies are eligible for recapture if:

2.1	You give us written notice of your intention to recapture within ninety (90) days of the effective date of the retention increase;
2.2	You have maintained your full retention for the age and mortality rating of the insured from the time that the policy was issued. No recapture shall be allowed for polices for which you established special or reduced retention limits unless you have retained your full retention on existing or concurrent polices on the insured life;
2.3	You retain all business that is recaptured under the terms of this Article; and
2.4	The policy has been in force under this Agreement for the Recapture Period shown in Exhibit C.XN. The recapture period will always be measured from the original policy issue date. For converted policies the recapture period will be the greater of the recapture period in the original reinsurance agreement, or the recapture period in the agreement to which the policy has converted, measured from the effective date of the original policy.

3.	METHOD OF RECAPTURE
	If you have given us written notice of your intent to recapture, and the date when recapture will begin, you may reduce the amount of reinsurance on eligible policies on the next following policy anniversary date, subject to the following:

3.1	All eligible policies must be recaptured;
3.2	The amount eligible for recapture is equal to the difference between (i) the amount you originally retained, and (ii) the amount you would have retained, based on the Percentage Retention Limit in effect at the time of issue, had the new Dollar Retention Limit been in effect at the time of issue;
3.3	If you increase the Percentage Retention Limit shown in Exhibit A.VI, but not the Dollar Retention Limit, recapture will not be allowed;

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3.4	If portions of a reinsured policy eligible for recapture were placed with more than one reinsurer, you must allocate the amount recaptured on a pro rata basis to the total outstanding reinsurance; and
3.5	If at the time of recapture the insured is disabled and premiums are being waived under any type of Disability Benefit Rider, only the life benefit will be recaptured. The reinsured portion of the Disability Benefit Rider will remain in force until the policy is returned to premium-paying status, at which time it will be eligible for recapture.

If you omit or overlook the recapture of any eligible policy or policies, our acceptance of your reinsurance premium payments after the date the recapture should have taken place will not cause us to be liable under this Agreement for the amount of the risk that should have been recaptured. We will be liable only for a refund of those payments received, without interest.

If your retention increase is due to your acquisition of, or by another company, or your merger or other organizational affiliation with another company, no immediate recapture will be allowed. However, you may recapture eligible policies once the Recapture Period set out in Exhibit C.XIV has expired.

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ARTICLE VIII — CLAIMS

1.	NOTICE OF CLAIM
	When you receive notice that a claim has been incurred on a policy reinsured under this Agreement, you must promptly notify us. You will also forward copies of the death certificate, proof of payment, and the claimant’s statement when the amount reinsured with us exceeds $250,000. For a claim incurred during the contestable period of the policy, you will forward copies of the application, underwriting papers, and any investigative reports. You will provide copies of other claim documents upon our request.
	For joint and last survivor business, if you are notified of first death under a reinsured policy, you must in turn notify us immediately.
	We will have no liability for claims on policies not meeting the coverage requirements of the applicable sections of Article II, Reinsurance Coverage.
2.	SETTLEMENT OF CLAIMS
	For us to have any liability, reinsured claims must meet the following conditions.

2.1	The total reinsurance recoverable will not exceed your total contractual liability under the terms of the policy less the amount you have retained;
2.2	The claim will be adjudicated according to the standard procedures you apply to all claims, whether reinsured or not, and on all foreign risk claims whether contestable or not;
2.3	You will conduct a routine investigation on all contestable claims and you will promptly advise us if there are any exceptions; and
2.4	You have not made a business decision to pay a claim that normal claim adjudication practices would indicate is not payable.

	For the settlement of Waiver of Premium Disability or other Disability Rider benefits, we will pay you our proportional share of the gross premium waived annually. Refunds of unearned reinsurance premiums less applicable expense allowances or discounts will be reflected on your billing statement.
	We will accept your good faith decision on any non-contestable claim. We reserve the right to request copies of the application, underwriting files, and any investigative reports for any non-contestable claim.
	You will consult with us on all contestable claims where the amount reinsured with us exceeds the amount you have retained for the risk. We will notify you promptly of our decision.
3.	CONTESTED CLAIMS
	You will notify us within fifteen (15) days of your decision if you intend to contest, compromise, or litigate a claim involving reinsurance under this Agreement. You will also provide us with all information relating to the claim. We will notify you within fifteen (15) days of our receipt of all documents requested whether we will participate or not in the contest. If we decline to participate in

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	the contest, we will immediately pay you the full amount of reinsurance due. Once we have paid our reinsurance liability, we will not be liable for legal and/or investigative expenses associated with the contest, compromise, or litigation, nor will we share in any refund that you may receive due to the contesting of the claim.
	If we agree to participate in a contest, compromise, or litigation involving reinsurance, you will give us prompt notice of the commencement of any legal proceedings involving the contested policy and you will promptly furnish us with copies of all documents pertaining to a lawsuit or notice of intent to file a lawsuit by any of the claimants or parties to the policy. We will share in the payment of legal or investigative expenses relating to a contested claim in the same proportion as our liability bears to your liability. We will not reimburse expenses associated with non-reinsured policies.
	If we participate and your contest, compromise, or litigation results in a reduction in the liability of the contested policy, we will share in the reduction in the same proportion that the amount of reinsurance bore to the amount payable under the terms of the policy on the date of death of the insured. If we participate and your contest, compromise, or litigation results in a dismissal of the claim and a return of the premiums, we will refund all reinsurance premiums that you have paid to us.
4.	CLAIM EXPENSES
	We will pay our proportionate share of the following expenses arising out of the settlement or litigation of a claim, providing that the expenses are reasonable:

4.1	Investigative expenses;
4.2	Attorneys’ fees;
4.3	Penalties and interest imposed automatically against you by statute and rising solely out of a judgment rendered against you in a suit for policy benefits; and
4.4	Interest paid to the claimant on death benefit proceeds according to your practices.

Our share of claim expenses will be in the same proportion that our liability bears to your liability.

You will be solely responsible for payment of the following claim expenses, which are not considered items of net reinsurance liability:

4.5	Routine administrative expenses for the home office or elsewhere, including your employees’ salaries; and
4.6	Expenses incurred in connection with any dispute or contest arising out of a conflict in claims of entitlement to policy proceeds or benefits which you admit are payable.

5.	OTHER NON-CLAIM LITIGATION EXPENSES
	This Agreement does not provide for reimbursement of legal expenses other than as specified in Article VIIIA. It is recognized that non-claim related legal actions involving reinsured policies may occur. These may include, but are not limited to, live rescissions, market/agent conduct, or class action suits. No reimbursement will be made for these actions without our prior written consent.

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6.	MISSTATEMENT OF AGE OR SEX
	If the amount of insurance on any policy reinsured under this Agreement is adjusted due to a misstatement of age or sex being established after the death of an insured life, the parties will share in such adjustment in proportion to their respective net amounts at risk under the policy.
7.	EXTRA-CONTRACTUAL DAMAGES
	We will not be liable for nor will we pay any extra-contractual damages, including but not limited to compensatory or punitive damages which are awarded against you, or which you pay voluntarily, in settlement of a dispute or claim where damages were awarded as the result of any direct or indirect act, omission, or course of conduct undertaken by you or your agents or representatives, in connection with any aspect of the policies reinsured under this Agreement.
	We will, however, pay our share of statutory penalties awarded against you in connection with claims covered under this Agreement if we elected to join in any contest of the coverage in question.
	We recognize that special circumstances may arise in which we should participate to the extent permitted by law in certain assessed damages. These circumstances are difficult to describe or define in advance but could include those situations in which we were an active party in the act, omission, or course of conduct of the original issuing company, which ultimately resulted in the assessment of the damages. The extent of our participation in these circumstances is dependent upon a good-faith assessment of the relative culpability in each case; but all factors being equal, the parties would generally share in the same proportion as their relative net liabilities in the division of any such assessment. For the purposes of this provision, the following definitions shall apply:
	“Compensatory Damages” are those amounts which are awarded to compensate for actual damages sustained, and are not awarded as a penalty, nor fixed in amount by statute.
	“Punitive Damages” are those damages which are awarded as a penalty, the amount of which is not governed, nor fixed, by statute.
	“Statutory Penalties” are those amounts which are awarded as a penalty, but fixed in amount by statute.

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ARTICLE IX — OFFSET

The parties agree to offset any balance(s), whether on account of premiums, claims, allowances, expenses, or any other amount(s) due from one party to the other party under this Agreement or any other reinsurance agreement between them. It is agreed that claims will not be offset until the claim procedures outlined in the Article VIII, Claims have been followed.

The right of offset will not be affected or diminished because of the insolvency of either party.

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ARTICLE X — ERRORS AND OMISSIONS

An error or omission occurs when either party fails to comply with any of the terms of this Agreement. If such failure to comply results from an unintentional misunderstanding, oversight, or clerical error, and if upon discovery of the error or omission by either party the other is promptly notified, then this Agreement will not be deemed to be abrogated thereby. If such failure to comply results from any other type of act or if the other party is not promptly notified when the error or omission occurs, this Agreement in its entirety may be subject to termination unless both parties reach an agreement to the contrary.

When an act is determined to be an error or omission, the party whose act caused the error or omission will take the remedial actions or steps necessary to restore both parties to the position they would have held or occupied if no such error or omission had occurred. If that is not possible, the parties will endeavor in good faith to promptly resolve the situation in a manner that is fair and reasonable and most closely approximates the intent of the parties as evidenced by this Agreement. However, in no event will our liability be extended to cover policies that do not satisfy the parameters of this Agreement or to exceed the limits provided herein.

If either party discovers that you did not cede reinsurance on a policy that should have been reinsured under this Agreement, you shall take the necessary actions or steps in a reasonable and timely manner to prevent such oversights from recurring in the future. If you fail to take the necessary actions or steps to remedy such a situation, we reserve the right to limit our liability to the amounts reported.

For greater clarity, acts or circumstances which are not considered to be errors or omissions for the purpose of this Article will include, but not be limited to:

10.1	Unresolved, repetitive reporting errors resulting from your neglect or mismanagement. In this situation you will conduct an audit to identify and report all policies requiring correction within ninety (90) days, or a time period mutually agreed upon by the parties. You will pay any premiums due under Article V, Reinsurance Rates and Payments. In the event you fail to make the necessary correction within the time period specified above, we reserve the right to limit our liability. In the event premium refunds are due you, we will pay them without interest;
10.2	Any act, error, omission, or oversight, whether intentional or unintentional, which is the result of your not adhering to your regular requirements in the underwriting, approval, issuance, or administration of the insurance or the associated reinsurance by you, or by your agents or representatives;
10.3	Any failure to arrange for reinsurance under this Agreement due to your practice of conducting a limited search of your records for other prior in force insurance on the same life;
10.4	Facultatively submitted business where you have either not notified us of your acceptance of our unconditional offer within the time period specified in the offer or have incorrectly advised us to close our file; and
10.5	Any error or omission discovered more than seven (7) years following the termination or expiry of the last cession remaining in force under this agreement.

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ARTICLE XI — DISPUTE RESOLUTION AND ARBITRATION

1.	DISPUTE RESOLUTION
	In the event of a dispute arising out of or relating to this Agreement, the parties agree to the following process of dispute resolution.
	Within ten (10) business days after one of the parties has given the other the first written notification of the specific dispute, each of the parties will appoint a designated officer to attempt to resolve the dispute. The officers will meet at a mutually agreeable location as early as possible and as often as necessary, in order to gather and furnish the other with all appropriate and relevant information concerning the dispute. The officers will discuss the problem and will negotiate in good faith without the necessity of any formal arbitration proceedings. During the negotiation process, all reasonable requests made by one officer to the other for information will be honored. The designated officers will decide the specific format for such discussions.
	If the officers cannot resolve the dispute within thirty (30) days of their first meeting, the parties agree that they will submit the dispute to formal arbitration. However, the parties may agree in writing to extend the negotiation period for an additional thirty (30) days.
2.	BASIS FOR ARBITRATION
	The parties understand and agree that the wording and interpretation of this Agreement is based on the usual customs and practices of the insurance and reinsurance industries. While the parties agree to act in good faith in their dealings with each other, it is understood and recognized that situations could arise in which they will not be able to reach an agreement.
3.	ARBITRATION PROCEEDINGS
	To initiate arbitration, either party will notify the other in writing of its intent to arbitrate, stating the nature of the dispute and the remedies sought. The party to which the notice is sent will have fifteen (15) days from receipt to respond confirming its receipt and readiness to arbitrate.
	The arbitration panel, consisting of three past or present officers of life insurance or life reinsurance companies not affiliated with either of the parties in any way, will settle the dispute. Each of the parties will appoint one arbiter within thirty (30) days following the date of the response to the initial arbitration notice. The two appointed arbiters will select a third arbiter within thirty (30) days following the selection of the second arbiter. If the two arbiters cannot agree on a third arbiter, the selection will be made by the Chairman of the American Arbitration Association. Once chosen, the arbiters will decide all substantive and procedural issues by a majority of votes.
	The arbitration proceedings will be conducted according to the Commercial Arbitration Rules of the American Arbitration Association which are in effect at the time the arbitration begins.

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The arbitration will take place in Austin, Texas unless the parties mutually agree otherwise.

Within sixty (60) days after the beginning of the arbitration proceedings the arbitrators will issue a written decision on the dispute and a statement of any award to be paid as a result. The decision will be based on the terms and conditions of this Agreement as well as the usual customs and practices of the insurance and reinsurance industries, rather than on strict interpretation of the law.

The parties may agree to extend any of the negotiation or arbitration periods shown in this Article.

Unless otherwise decided by the arbitrators, the parties will share equally in all expenses resulting from the arbitration, including the fees and expenses of the arbitrators, except that each of the parties will be responsible for its respective attorneys’ fees.

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 26 of 34

ARTICLE XII — INSOLVENCY

A party to this Agreement will be deemed “insolvent” when it:

12.1	Applies for or consents to the appointment of a receiver, rehabilitator, conservator, liquidator or statutory successor of its properties or assets; or
12.2	Is adjudicated as bankrupt or insolvent; or
12.3	Files or consents to the filing of a formal application for dissolution, liquidation, or similar action under state law or statute; or
12.4	Becomes the subject of an order to rehabilitate or an order to liquidate as defined by the insurance code of the jurisdiction of the party’s domicile.

If you are judged insolvent, we will pay all reinsurance under this Agreement directly to you, your liquidator, receiver, or statutory successor on the basis of your liability under the policy or policies reinsured without diminution because of your insolvency. It is understood, however, that in the event of your insolvency, the liquidator, receiver, or statutory successor will give us written notice of a pending claim on a policy reinsured within a reasonable time after the claim is filed in the insolvency proceedings. While the claim is pending, we may investigate and interpose, at our own expense, in the proceedings, where the claim is to be adjudicated, any defense that we may deem available to you, your liquidator, receiver, or statutory successor. It is further understood that the expense we incur will be chargeable, subject to court approval, against you as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to you solely as a result of the defense we have undertaken. Where two or more reinsurers are involved in the same claim, and a majority in interest elects to interpose defense to the claim, the expenses will be apportioned in accordance with the terms of the reinsurance agreement as though you had incurred the expense. We will be liable only for the amounts reinsured and will not be or become liable for any amounts or reserves to be held by you on reinsured policies.

If we are judged insolvent, we will be considered in default under this Agreement and you may terminate this Agreement immediately for new business. The notification period required under Article XVI, Duration of Agreement shall be waived under such circumstances. Amounts due us will be paid directly to our liquidator, receiver or statutory successor without diminution because of our insolvency.

In the event of insolvency, the right of Offset afforded under Article IX will remain in full force and effect to the extent permitted by applicable law.

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 27 of 34

ARTICLE XIII — INSPECTION OF RECORDS

We, or our duly appointed representatives, will have access to your original papers, records, books, files, and other documents relating directly or indirectly to the reinsurance coverage under this Agreement for the purpose of inspecting, auditing, and photocopying those records. You will provide such access at the office(s) where such records are kept during reasonable business hours.

Provided there is business in force under this Agreement, our right of access will survive the termination of this Agreement.

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 28 of 34

ARTICLE XIV — LETTER OF CREDIT

1.	RESERVE CREDIT
	For those states in which we are not licensed, admitted, or authorized and you are consequently not permitted to take reserve credit on your Annual Statement for all or a part of the reinsurance ceded to us, we will furnish a clean, unconditional, evergreen and irrevocable Letter of Credit. The Letter of Credit will be issued by a bank which is neither a parent, subsidiary, nor an affiliate of the parties (hereinafter referred to as the “designated bank”) in an amount equal to the reserves ceded to us. The designated bank must be organized or licensed in the United States and must appear on the list of approved banks published by the Securities Valuation Office of the National Association of Insurance Commissioners.
	We will bear the cost of the Letter of Credit.
2.	LETTER OF CREDIT DRAW
	It is understood that you may draw on the Letter of Credit at any time, notwithstanding any other provisions herein. You undertake to use and apply any amount, which you may draw upon the Letter of Credit, pursuant to the terms of this Agreement under which the Letter of Credit is held, and only for the following purposes:

2.1	To reimburse you for our share of any net obligations currently due and payable under this Agreement;
2.2	To the extent required by law, to fund an account representing our net obligations currently due and payable under this Agreement; or
2.3	To pay other amounts due you under this Agreement.

You agree to return to us any amounts drawn on Letters of Credit which are in excess of the actual amounts required for 2.1 or 2.2 above, or in the case of 2.3 above, any amounts that are subsequently determined not to be due.

The amounts drawn under any Letter of Credit will be applied without diminution because of the insolvency of either party. The designated bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by you or the disposition of funds withdrawn, except to see that withdrawals are made only upon the order of your properly authorized representatives.

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 29 of 34

ARTICLE XV — CONFIDENTIALITY

The parties agree to treat all customer and proprietary information as confidential. Customer information includes, but is not limited to, medical, financial, and other personal information about proposed, current, and former policyowners, insureds, applicants, and beneficiaries of policies you issue. Proprietary information includes, but is not limited to, business plans and trade secrets, mortality and lapse studies, underwriting manuals and guidelines, applications and contract forms, and the specific terms and conditions of this Agreement.

You recognize that we may need to share certain information with auditors, regulators, and retrocessionaires in the normal course of conducting business.

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 30 of 34

ARTICLE XVI — HOMICIDE BENEFIT LIMITATION

The Company limits the death benefit to the return of all premiums paid if the cause of death is homicide, except in some countries as listed in Exhibit F, where the Company currently pays the full death benefit in the case of homicide if the insured was not involved in the commission of a crime. In the event of a death by homicide, the parties will be liable for the payment of this limited death benefit in the same proportion as had the death not been by homicide. As of the date of this Agreement, it is agreed by both parties that the Company may offer the less strict version of this benefit limitation in all remaining countries that are classified as au “A” risk, as shown in Exhibit E.

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 31 of 34

ARTICLE XV — DURATION OF AGREEMENT

This Agreement is unlimited as to its duration. Either of the parties may terminate this Agreement for new reinsurance at any time by giving at least ninety (90) days written notice of termination to the other party, unless mutually agreed otherwise.

During the notification period, you will continue to cede and we will continue to accept policies covered under the terms of this Agreement.

Our liability for reinsured policies, which are in force as of the effective date of the termination, will continue as long as you continue to pay reinsurance premiums as specified in Article V, Reinsurance Rates and Payments.

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 32 of 34

ARTICLE XVIII -INTERMEDIARY CLAUSE

Intermediaries & Consultants, Inc., One Progress Plaza, Suite 270, St. Petersburg, Florida, 33701 is hereby designated as the Intermediary negotiating this Agreement for all business hereunder. Unless otherwise agree upon, all communications (including, but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through Intermediaries & Consultants, Inc. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 33 of 34

ARTICLE XIX — EXECUTION OF THE AGREEMENT

This Agreement has been made in duplicate and is hereby executed by both parties.

CICA Life Insurance Company of America
Denver, Colorado

/s/ Jonathan Pollio

Jonathan Pollio

Vice President, Chief Actuary

July 23, 2009

Mapfre Re Compania de Reaseguros, S.A.
Madrid, Spain

/s/ Julio Antonio Castelblanque	/s/ Carlos Sanzo
Julio Antonio Castelblanque	Carlos Sanzo
Life Manager	Chief Regional Officer, North America
August 5, 2009	August 5, 2009

Mapfre — CICA Life Reinsurance 1-1-09 FINAL

Page 34 of 34

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Under
Section 302 of the Sarbanes-Oxley Act of 2002

I, Harold E. Riley, Chairman and Chief Executive Officer of Citizens, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Citizens, Inc. (“registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design of operation of internal control over financial reporting which are reasonably likely to adversely effect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Harold E. Riley
	Harold E. Riley
	Chairman and Chief Executive Officer

Date: November 6, 2009

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Under
Section 302 of the Sarbanes-Oxley Act of 2002

I, Kay E. Osbourn, Vice President, Chief Financial Officer, Principal Accounting Officer and Treasurer of Citizens, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Citizens, Inc. (“registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design of operation of internal control over financial reporting which are reasonably likely to adversely effect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Kay E. Osbourn
	Kay E. Osbourn
	Vice President, Chief Financial Officer, Principal Accounting Officer and Treasurer

Date: November 6, 2009

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer
of Citizens, Inc. Pursuant to 18 U.S.C. §1350

I, Harold E. Riley, certify that:

In connection with the Quarterly Report on Form 10-Q of Citizens, Inc (the “Company”) for the period ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harold E. Riley, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Harold E. Riley
Name:	Harold E. Riley
Title:	Chairman and Chief Executive Officer
Date:	November 6, 2009

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer
of Citizens, Inc. Pursuant to 18 U.S.C. §1350

I, Kay E. Osbourn, certify that:

In connection with the Quarterly Report on Form 10-Q of Citizens, Inc. (the “Company”) for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kay E. Osbourn, Vice President, Chief Financial Officer, Principal Accounting Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kay E. Osbourn
Name:	Kay E. Osbourn
Title:	Vice President, Chief Financial Officer, Principal Accounting Officer and Treasurer
Date:	November 6, 2009