Citizens Inc (CIA) 2010 Q1 法說會逐字稿

This conference will now be recorded.

Good morning. Welcome to Citizens, Inc.'s first quarter 2010 earnings call. I'm joined today by Kay Osbourn, our Chief Financial Officer, Jeff Kolander, our General Counsel, and I'm Josh Arnold, Investor Relations.

During today's call, we will discuss the expected performance of Citizens, Inc. which ill constitute forward-looking information within the meaning of the Private Securities Litigation Act. Actual results may differ materially from any forward-looking information provided in this call, since such information involves significant risk and uncertainties.

A complete disclaimer is included in Citizens, Inc.'s press release dated May 6, 2010, and is incorporated by reference into this call. We are not responsible for transcripts of this call made by independent third parties.

I will now turn the call over to Kay Osbourn, our CFO.

Good morning. We appreciate you joining us this morning to go over our first quarter results. The Company is reporting net income of 1.6 million or $0.03 per basic and diluted Class A common share, compared to 4.4 million or $0.07 basic and $0.03 diluted for last quarter 2009.

Just to give you a little bit of an overview relative to our general market, we have a lot of the continuing items that we brought up in the fourth quarter of 2009 continuing in the first quarter. Our international sales are somewhat muted. We believe that is related to the global economic conditions. We do continue to work on new areas of production internationally.

Our Home Service market has been performing well and we do anticipate that it will continue to perform in the future as we build that market and develop additional states what we'd like to look to.

Our acquisition potentials are out there and we are continually working on those areas and targets and continue to focus on additional development and work on our overall strategic plans. We have seen the Ozark acquisition merge into [SLC] and that has continued well and is meeting expectations. And we also had the Integrity Capital acquisition in the first quarter of 2009, which we've identified and have reported in our results.

Our total revenues have increased 43.8 million in the first quarter compared to 44.7 in 2009. That's a decrease -- excuse me -- of 1.8%. That's due primarily to the fair market value adjustment that we have running through the revenues. That was 2.1 million in 2009. That was an increase in revenue compared to 2010. We had $100,000 decrease. That is a fair market adjustment on our warrant liabilities.

We do have investment performance that is a key factor that we look at as part of our overall insurance industry performance. We are having a decrease in investment yields of approximately 50 basis points on the overall portfolio compared to last quarter 2009.

We are continuing to buy US government agencies and focus on high credit quality in our portfolio. We do anticipate that the low yields will continue into 2010 due to the current environment that we're facing.

We did not have any additional other than temporary impairments in this first quarter. We did have other than temporary impairments in the first quarter of 2009 totaling approximately $100,000.

We anticipate that we will continue to monitor those investments that we have, but we do not purchase any non-investment grade securities and a primary focus of ours is the credit quality of our portfolio.

We do have additional -- I lost my train of thought, excuse me. No RBC issues have been identified in this particular quarter. We did have some RBC issues in previous identified reportings, but those have all been rectified and we do not anticipate any additional areas there.

And I think as far as overall, we plan on continuing to work strategically on our goals as we've indicated, and continue to grow our business overall.

And at that point, I think I'll turn it over for questions. Are there any questions at this time?

Hey, guys, it's Ed Shields. Can you hear me?

Yes, we can.

Oh, great, no feedback this time.

No feedback. You sound great.

It's beautiful, crystal clear. Let's start off with the acquisitions comment you made. What sort of thing might you be looking for, what sort of business and also kind of prospective sizes -- kind of in a general perspective.

Sure, Ed. We're really looking to continue to grow the Home Service segment as we have focused on the past. That is definitely a viable strategic area that we're focusing on. We're also looking for Life growth. As the Company's history has shown, we do grow through acquisitions, so that is something that we continually monitor. I don't think that we have size factors that are limiting us that we are focused on. We really look at all the targets that are brought before us and analyze them on independent bases. And if there's something that's bigger than we could do outright, we may look to means to get that done if we feel it's a strategic advancement for our Company.

All the acquisitions, Ed, would also be domestic. I don't think we, at this point, look at anything internationally.

That's correct.

Is there any kind of geographic area that you may be concentrating more to develop for diversification purposes or anything along those lines?

Well, from a Home Service perspective, we're looking more around the southern states at this time. That's not to say that we would not increase that to other states overall, but the focus currently has been relative to some of the southern states that we already actually have lines out on and we're looking at. So that's been our primary focus, but I don't want to limit it to just that.

And on the Life side?

We're wide open on the Life side in the US just to -- we really are looking at all the opportunities that come up and determining how they can strategically fit our business and best works for the goals that we're trying to achieve.

Right, I understand. Can we -- do you know the RBC numbers for the first quarter?

I do not have those in front of me. I know that they all increased compared to fourth quarter '09.

Right. One would expect that, given how the markets performed in the first quarter.

Exactly.

Until yesterday and today.

Well, yes.

Yes.

Would you -- can you provide any additional color on the surrenders that picked up in the quarter-over-quarter -- or year-over-year basis?

I can. Our surrender activity obviously has been something that we're monitoring. We are still working on our side to get some additional insight into more particulars on understanding some of the surrenders that we're interested in, but just on an overall perspective, the surrenders have maintained at about .04% of total in-force. We are seeing that it is primarily driven through policy surrenders that are past the surrender charge, which means after year 15, there are some current surrenders in year two and three which we're also getting, but then after that, they level off. And we're seeing that it's really the significant amount of surrenders is in those later years where there are no surrender charges.

And for those -- the total policies that are older than year 15, how much of that is in terms of that in comparison to the total book of business?

We do not know. That's one of the things that we are actually working on with our actuarial department to get a better idea of what is driving that. It could be that it's the set -- the blocks of sales in those years, 15, 16 years ago, were larger selling years, and so we're just seeing just regular runoff relating to that larger sale year and production year.

And so those are the kinds of questions that we're still needing to understand ourselves and we do plan on having more insight into this by next quarter.

So you don't know how many -- what proportion of the policies are actually at year 15 out of the whole book?

I do not know that, particularly myself.

Okay.

Our actuary may, but I'm not privy to that information at this time.

Can you comment on what competition you're seeing out there, what competitors are doing in, I guess, primarily the domestic markets because the international, you don't have a lot of competition.

Well, competition is tough, especially domestically, obviously. We obviously focus on our niches where we feel that we have competitive advantage. Specifically the Home Service has been a good production area that we feel we feel we are very competitive in and that's exactly why we're looking at new acquisitions in that area.

The Life domestic side is obviously a tough market, but we also focus on areas that we feel we have a product that benefits the policyholders and it sells itself.

So I know last quarter, you guys had put in some price increases on the Home Service side. Are you seeing any kind of matching price increases from competitors there?

The price increases we put in was on the Fire business.

Okay, right, the Fire business.

And for the quarter, our premiums from the Fire company was up a little bit and we didn't see much runoff at all from that price increase, but on the Life side, we haven't done any price increases.

Right. But you're not seeing anything in the marketplace in terms of competition on pricing there?

No.

And I guess my last question is on the balance sheet, the real estate held for sale, any plans on that?

It's for sale. It will continue to be for sale. That is the building in Arkansas that came with the Ozark acquisition. It's the home office up there. It's a building that -- it is making money for us currently. The building is leased to other tenants in the area, other tenants in the Little Rock business community and we just don't believe that's our core competency. And we would be -- it would be a better use to sell the building and take the cash and put it in our bond portfolio than we would to manage that real estate. So that's why it's for sale.

Right.

(Inaudible) expectations that it'll be a little bit before we sell it just because of the commercial real estate market and the way it's been depressed and --

Right, just waiting for the market to turn around a bit?

Correct, correct. But the building is making for us, so it's not an (inaudible).

And I guess the last question I have is on the US agency bonds that you're buying, are those -- obviously, they're callable, so they're having a higher yield, I guess?

Correct.

What's the current yield on those things that you're buy -- you're getting into now?

5.25 would be an average, I would say. Right now, at mid -- it's fluctuated in the first quarter from almost up to 5.5 at times. So today currently, the bond market in the last couple of days has really rallied.

Right.

And also the stock market -- that today, our current piece of paper would be under 5%.

Are you buying those directly or are you going through a broker for those?

We go through brokers.

Okay. That's it for me. Thanks, guys.

Thanks, Ed.

Thank you.

Are there any other questions? If not, we will close this call at this time. Thank you very much.

Thank you.

The moderator has disconnected. The conference will now end.