Citizens Inc (CIA) 2007 Q3 法說會逐字稿

I am Rick Riley, Vice Chairman and President of Citizens, Inc. Ladies and gentlemen, we thank you for standing by and welcome to the Citizens Inc. third quarter earnings release conference call. We will begin the call as a listen only call and all participants -- we ask all participants to mute their microphones. Before we conclude, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded.

With me today is Tom Kopetic, our Chief Financial Officer. I'll begin with an overview on Citizens and Tom will discuss our recent financial results for the three months and the nine months ended September 30, 2007. After we're finished with our presentation, we'll be happy to answer any of your questions. In case you have not seen our news release about the third quarter and the year-to-date earnings, it is posted on the Internet at www.citizensInc.com. An online replay of this conference we expect to have available later this afternoon about 3:30 Central time.

Now, since I don't have a crystal ball and the lawyers have set me up here to be sure you understand that we caution you that this presentation includes forward-looking statements. Forward-looking statements include without limitation any financial guidance and statements about our plans, strategies and prospects. These statements are based on our current expectations and projections about future events and are identified by terminology such as may, will, should, scheduled, planned, seek, intend, anticipate, believe, estimate, aim, potential, and continue -- there's probably more they could put in there but they ran out of space on the page -- or any other negative terms or other comparable terminology. Although we believe our plans, intentions, expectations are reasonable, we may not achieve our plans, intentions, or expectations and important factors could cause our actual results to differ materially from these forward-looking statements.

Factors that could contribute to these differences include among other things, risks set forth in our filings with the SEC. You should not place undue reliance on any forward-looking statements, forward-looking information is intended to reflect opinions as of the date of this statement. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reasons. Hopefully I got all that right and the lawyers will be happy with me. Again, we welcome you here today. We appreciate your participation in the call.

Citizens Inc. is a financial services life insurance holding company. We're involved in a couple of niches, marketing wise, the international sale of dollar denominated, U.S. dollar denominated policies, all activity -- all payments are in U.S. dollars on U.S. banks. We do not actually exist or have presence in any foreign territory. The other niche that we're involved in is the home service market, which is the -- if you're familiar with the life insurance business, the old debit business. That makes up our two primary segments of our business operations.

Our core products are whole life products, they provide a long-term, stable and profitable revenue stream to the Company. We have been in the international marketplace now for over 30 years. We're one of the dominant players in the Latin American market and have been expanding successfully over the last three or four years in the Pacific Rim.

Our involvement in the home service market is predominantly in Louisiana, through an acquisition that we made in 2004. That acquisition placed us as one of the leading players in the home service market in the Louisiana marketplace and we're happy with how that particular acquisition has been tracking and we're looking forward to making additional acquisitions of that similar nature for other U.S. domiciled companies.

Our investment strategy is one that's very conservative. We do not have any direct subprime risk. If we have any exposure to subprime investments, they're going to be strictly through some minimal amount of corporate holdings that we may have in something like GE Capital. The Company is made up of a team of people. This Company has actually been in the making now for about 40 years. It was started in 1969 by my father, Harold Riley, who has had extensive experience in the insurance industry, since about 1953 and has built companies for other people but then started his own company in '69 and what we're working on today and what we're building and dealing with in today's world is a 40-year history of development and continuing growth and expansion, not only through the sale -- direct sales of product but also through acquisition of other companies and other blocks of business here in the United States. With that introduction, I'll turn this over now to Tom and let him take you through the financials.

Good morning. The first thing we'll talk about is the quarter ended September 30, 2007 as compared to the same quarter in 2006. Excuse me. For the quarter, total revenue was $42.8 million, which was $4.2 million or 10.9% above 2006. Total revenue for our life insurance segment was $29.7 million, which was 15% above the prior quarter. And that's reflective of continued growth in new business and favorable persistency. The home service revenues amounted to $13.2 million, compared to $12.7 million in 2006. Operating income before federal income tax for the quarter was $5.8 million, compared to $4.3 million in the prior year. Operating income was $2.2 million above prior year.

Excuse me. We just a call in. We weren't being recorded properly. Operating income of $2.2 million for the home service division due mainly -- was above 2006 mainly because of the hurricane losses recorded in 2006. The life insurance segment operating income of $2.9 million was slightly below last year. Net income of $4.7 million was 65% above 2006. Net income for our Class A common stock was $0.10 per share for the quarter, compared to $0.06 per share in the prior year.

The increase in 2007 in earnings was due primarily to higher premium income, the lack of hurricane related casualty claims and the release of a valuation allowance against deferred tax assets. Premium income increased $35.3 million and was 12.3% over the third quarter in 2006, due primarily to increased new business in the international life market, as well as the continued strength of renewal business. Additionally, premium losses in security plan in our home service division as a result of the hurricanes was very minimal in 2007. We also implemented substantial rate increases in the fourth quarter of 2006 and an additional rate increase in the third quarter of 2007. This combined with reinstated policies lost during the hurricane resulted in a 55% increase in our property premiums during the third quarter of 2007.

Net investment income was $7.4 million, compared to $7 million in the prior quarter. As Rick had had indicated, we invested very conservatively mainly in U.S. government sponsored enterprises such as Fannie Mae. However, in 2007 we purchased $17 million worth of growth oriented mutual funds and will continue to increase these investments but not to exceed about 10% of our total invested assets.

For the quarter, claims and surrenders increased $13.8 million, or about 5%, the increase primarily related to increased death claims in our international business. The increase was offset by a $1.6 million less in casualty claims related to the hurricanes in 2007, versus 2006. During the quarter, we released reserves related to the 2005 hurricanes and casualty claims were actually income of $176,000 compared to a $1.4 million loss in 2006.

Commission -- the commission percentage increase was favorable. It was lower during the quarter, compared to the increase of premium and this is due to the persistency improvement in our book of business, generated by a greater amount of renewal premiums or renewal commissions, which pay at a lower rate than on our new business. Underwriting and acquisition expenses were $6.7 million for the quarter, up from $6 million last year, due to increased stock transfer costs, some miscellaneous commissions and credit card processing fees in 2007. The majority of our international business or a large portion of our international business comes -- the premiums are paid through credit card payments and those are the processing fees related to that.

The effective tax rate for the third quarter, 2007, was 20.1% versus 34.6% in the third quarter of 2006. The lower rate primarily was a result of the Company's releasing of a valuation allowance on net deferred tax assets of one of its subsidiaries, Citizens National, during the quarter in the amount of $1.2 million. The deferred tax asset was primarily the result of net operating losses in Citizens National and the Company's ability in 2008 to include these net operating loss carried forward in its consolidated return.

I'd like to move on to the nine months ended September 30, compared to 2006. Total revenue for the three quarters of 2007 was $123.8 million, or 9.1% over the prior three quarters. Total revenue from our life insurance segment was $84.4 million, 14% over the prior year. And the increase is reflected of continued growth in new business, as well as strong persistency in the international market. Home service revenue of $39 million was slightly above 2006. Management's emphasis on sales and casualty rate increases have increased premium levels and we're optimistic about the future in the home service division.

Operating income before federal taxes for the nine months ended 2007 was $14.9 million, compared to $6.7 million in 2006. By segment, the operating income was $7 million above 2006 for the home service division, due to $3.3 million of lower casualty claims on a comparative basis for the hurricanes. Additionally, life reserves in the home service division were reduced about $700,000 due to an overstatement of accidental death reserves. The life insurance segment was $2.1 million higher in 2007 than 2006, due to premium increases and increases in net investment income generated by increased investment assets. Net income of $10.6 million was $6 million or 131% above 2006. Net income per class of common stock was $0.22 per share in 2007, compared to $0.08 per share in 2006. The 2007 increase in earnings was due primarily to higher premium income, lack of hurricane related casualty claims compared to '06 and the release of the valuation allowance against deferred tax assets. The Federal tax rate for the nine months ended September 30, was 28.8% versus 31.5% in the prior three quarters and the same items that I mentioned earlier were reflective of that lower rate. If we have any questions, I guess we'll just open it now for anybody that wants to chime in.

Hearing no questions, we'll close the call. I do want to make it clear that we got off to a little bit -- didn't get the recording started initially. This is our first attempt to make this type of a call. But we'll be a little smarter the next time and get that recording started from the beginning. But we again appreciate everybody being a part of it today. Thank you very much for your participation. Good-bye.