Citizens, Inc. (CIA)
Interview with:
Rick Riley, Vice Chairman and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
C CAP insurance plan that helps you create capital for needs such as:  retirement income, children's higher educational funds, business opportunities, emergencies and health care needs and also provides death benefits.

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Citizens’ products emphasize building an income you cannot outlive

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Insurance (Life)

Citizens, Inc.

400 East Anderson Lane
Austin, TX 78752
Phone: 512-837-7100

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Rick Riley
Vice Chairman and CEO

Interview conducted by:
Lynn Fosse
Senior Editor
May 2004

Rick D. Riley has served in virtually every capacity of a life insurance operation since joining the Citizens team more than 27 years ago.  He holds a Bachelor of Business Administration degree from Baylor University, with a concentration in Accounting and a minor in Statistics, and he has had extensive training in life insurance accounting.   Furthermore, Mr. Riley holds the FLMI designation in Personnel Management from the Life Office Management Association (LOMA).  As Chief Executive Officer for Citizens and its subsidiaries, Mr. Riley leads a team of life insurance professionals who are responsible for day-to-day operations of the company.  Over the years, he has been and continues to be involved in the development of life insurance industry data processing systems.  He also lends his expertise in consolidating the operations of life companies each time Citizens completes another acquisition.  Mr. Riley serves as a deacon at the Hyde Park Baptist Church in Austin, Texas.  He is a past director of the Texas Legal Reserve Officials Association (now known as the Texas Association of Life and Health Insurers) and currently serves as the Company’s representative to the American Council of Life Insurers, today’s premier life insurance advocacy organization in the United States.

Company Profile:
Citizens, Inc. (CIA-NYSE) operates primarily as an insurance holding company.  The Company conducts its business through nine companies in which it directly or indirectly owns 100%.  They include Citizens Insurance Company of America (CICA), Citizens USA Life Insurance Company (CUSA), Citizens National Life Insurance Company (CNLIC), First Alliance Life Insurance Company (FAIC), Mid American Century Life Insurance Company (MACLIC), Security Alliance Insurance Company (SAIC), Computing Technology, Inc. (CTI), Insurance Investors, Inc. (III) and Funeral Homes of America (FHA).  The Company primarily offers life insurance products, with specialized marketing of its products to residents of Latin American and Asian countries, which accounts for most of its new revenues.  Additionally, the Company's USA operations primarily include sales within Texas, Oklahoma, Mississippi, Louisiana, Arkansas, Missouri, Illinois and Kentucky, much of which is directly attributable to insurance subsidiaries acquired over the past several years.

The introduction of Citizens' C CAP Millennium 2000 Cash Accumulation Plan is one of the most exciting life insurance concepts available today.  This unique, whole life cash accumulation policy addresses what should be the major financial concern of every U.S. citizen.  The question is not, “Will you die?”  But instead, are you financially prepared to live 30, 40, or 50 years after reaching age 65?  The odds are that you may actually live that long.  The Citizens' C CAP plan addresses the issue of outliving your monthly income, and at the same time, provides death benefits in case of an early demise.  The C CAP policy contains tax-deferred cash accumulation features that build up large amounts of cash and annuity values, return premiums, waive payments, and pay triple accidental death benefits.   The primary purpose of Citizens' C CAP plan is to help you create capital for needs such as:  retirement income, children's higher educational funds, business opportunities, emergencies and health care needs, etc.

Citizens' international products focus on cash accumulation for living needs, government appropriation of assets, currency devaluation, as well as death protection.  These unique policies contain dividend trust features, large cash values, and cater to concerns people have about retirement income and the transference of capital.  The creation of Citizens' Millennia 2000 Series introduced one of the most exciting portfolios of life insurance products ever offered in the international marketplace.  These participating, whole life policies' large cash value plans address the major financial concerns of people worldwide, including retirement income, premature death, accidental dismemberment, terminal illness, protection against currency devaluation and inflation.

Citizens acknowledges the most important need is for living benefits and therefore specializes in providing wealth accumulation with compound interest earning strategies for its worldwide family of policy owners. The mission of Citizens is to help individuals accumulate, earn, and save a substantial amount of money while working, so they will have peace of mind knowing their financial future is secure.

CEOCFOinterviews: Mr. Riley, please tell us about Citizens Inc. and your long-term role?

Mr. Riley: “Citizens, Inc. is a life insurance holding company.  Currently, six life insurance companies are commonly controlled with Citizens Insurance Company of America being the largest of those companies.  I have been with the company since 1976, so I have been through quite a number of different transitions and changes in the company over the years.   Citizens Inc. was created by the combination of several life companies in or about 1987.  I served in various officer positions within the Citizens, Inc. family of companies until October 2000 when I was named Vice Chairman and CEO.  My tenure with the company has been almost 30 years.  When I joined the company, it was a small life insurance operation with only $15 million in total assets.  Today, our assets exceed $400 million.”

CEOCFOinterviews: What is the focus of Citizens’ today and for the future?

Mr. Riley: “We have a set of goals which we refer to as “2010” objectives.  By the year 2010, we expect to see the company reach a billion dollars in assets, $250 million of premium income and $250 million of stockholders equity.  We are achieving these goals through a three-pronged approach:  selling life insurance products here in the United States, selling life insurance products outside of the United States, primarily in third-world countries and, the third element of our development and growth strategy, acquiring other companies.  The Citizens management team has been doing these same three things since I joined the company in the mid-seventies, so it is a strategy with a well-proven track record.”

CEOCFOinterviews: Are you happy with the mix that you have now?

Mr. Riley: “Frankly, we would prefer to see more U.S.-based sales.  About two-thirds of our sales have been outside the continental U.S.  Primarily these sales are from Latin America; however, the Pacific Rim sales have been expanding nicely over the last couple of years.   We are seeing a robust development of sales and marketing efforts in Asian countries.  Efforts in the last few years to develop sales within the continental U.S. are being enhanced through acquisitions of companies with active marketing forces.   So we expect to see our U.S.-based sales growth improving.”

CEOCFOinterviews: Explain how you offer much more than just life insurance.

Mr. Riley: “Citizens sells life insurance by emphasizing living benefits.  We approach the sale of life insurance from a slightly different perspective than most life insurance companies.   The problem people will face during their later years in life is the fact that we are all living longer and we will need to have an income when we can no longer work to earn an income.  Citizens designs its products to provide an income that cannot be outlived.  Our products emphasize living benefits.  The most important part of the life insurance equation is the living benefit.  Living benefits help the majority of the people who buy life insurance because eighty-five of one hundred who reach age sixty-five will need the return of their money, not a death benefit.  By concentrating our product development energies toward the eighty-five percent of the population who will be living beyond the traditional retirement age, Citizens’ products benefit the majority.”

CEOCFOinterviews: How do you help your clients realize the need for the living benefits of life insurance?

Mr. Riley: “We keep it quite simple.  From a marketing standpoint, we are niche-oriented in the way we present our products.  By putting together a package of benefits, which optimize cash accumulation, Citizens’ products help a person build and accumulate wealth.  Our approach is focused upon helping people understand what they need to do each month and then putting them in a position to accomplish that month-in and month-out.  We find people are interested in Citizens’ products because they personally benefit rather than a descendant or beneficiary benefiting after their death.  Most people look at life insurance as something you pay on all your life, then have to die for someone else to benefit.  By promoting the living side of life insurance benefits, people understand we sell and design products to solve the problem of living too long rather than dieing too soon.

In a manner of speaking, we do financial advising.   We help people understand how to do future planning.  There is going to come a point in the future where the client is not able to earn an income and the Citizens products help them help themselves.  By talking about financial planning and how our products work, Citizens provides the tool needed to accomplish financial independence which concerns everyone’s future.”

CEOCFOinterviews: How do you market your products?

Mr. Riley: “Independent individuals represent, promote and present our products to prospective clients.   These associates represent us all around the world.”

CEOCFOinterviews: Outside of the U.S., how do you weather the ups-and-downs in the foreign economies and the world economy in general?

Mr. Riley: “We have been able to withstand the ups and downs of the worldwide economy by doing business strictly in U.S. dollars.  All the business we do outside the U.S. is done in U.S. dollars on U.S. banks.  Clients in foreign countries are using the U.S. dollar as a hedge against their country’s currency instability and the unpredictable nature of their own economy.”

CEOCFOinterviews: What do you look for in a potential acquisition?

Mr. Riley: “We look primarily at companies with profitable ordinary whole life books of business.  We are not interested in acquiring someone else’s problem.  For example, a company paying 8-11% on annuities when the marketplace today, without taking extraordinary risk, is paying 5-6%, is not a good acquisition target.  We focus on companies that are profitable entities, have a good book of business and have a lot of synergy with what we do well.”

CEOCFOinterviews: Is there a lot of consolidation going on in the industry?

Mr. Riley: “There is always consolidation going on within the industry.  New companies are being started while others are being consolidated and eliminated.  This has been happening throughout my career in this industry.  The creation of new companies is not nearly as prolific as it has been in decades past, but certainly new companies are being started every year.”

CEOCFOinterviews: How do you know what to be looking for down the road?

Mr. Riley: “Interestingly enough, the business and the industry have changed quite a bit.  We have been dragging our heals along the way because we are not promoting products that transfer or shift the risk from the company to the client, like universal life products and certain annuity products do.  Citizens builds products, which are traditional, whole life benefits designed to protect against a premature death, but primarily focused toward accumulating money to be returned when the client lives too long, has a medical emergency or needs to provide funds for a child’s education.”

CEOCFOinterviews: You certainly had a good quarter at the end of 2003. Will you tell us about your financial situation?

Mr. Riley: “We had an excellent fourth quarter of 2003 with a 61% earnings increase as part of our ongoing efforts to grow the company through sales and acquisitions.  We had almost $25 million in new sales this last year with approximately $8 million of that from the accident and health segment of the business.  The balance came from life insurance sales, both inside and outside of the U.S.  The year 2003 was a transitional year.   When you make acquisitions, you usually have some duplication of expenses to be eliminated.  Throughout 2003, reorganization and operational consolidation eliminated the balance of duplicate overhead from the 2002 acquisitions while also eliminating much of the redundant expenses for the 2003 acquisitions.  At the end of 2003, the majority of unnecessary expense had been purged.  During the first half of 2004, we expect to see some additional expense reductions related to the acquisition closed last November.  We are pleased with how well the company continues to grow, especially in economic times that have been somewhat challenging over these last couple of years.”

CEOCFOinterviews: What challenges do you have to meet to reach your goals?

Mr. Riley: “Our challenges are finding the right acquisition candidates as well as recruiting and training new marketing representatives to sell our products.  These are the significant challenges, yet these are also the very things we have been doing for many years.   Therefore, the challenges are not new to us, we understand what to do and how to do it.  Given the ongoing successes evidenced by our historical growth, we fully expect to continue working as we have over the last forty-plus years.  No doubt we will reach our current goals long before we get to 2010.”

CEOCFOinterviews: As CEO, what are your functions throughout the day?

Mr. Riley: “Having come up through the ranks, it is not uncommon for me to be actively involved in various operational events from day to day.  I led software and systems development efforts for more than fifteen years, so I am often involved in strategic planning to define how to enhance or modify our computer systems.  We have a regular senior management meeting each week, and contemporaneously as needed, so I spend considerable time with fellow management team members discussing different items such as acquisition candidates, recruiting and hiring, goal setting, sales development or establishing project priorities.   I am involved daily in planning, organizing and controlling how the company operates.”

CEOCFOinterviews: Is there any interesting aspects to Citizens Inc. that potential investors might not realize?

Mr. Riley: “In terms of a hidden quality or value, Citizens is a company of exceptional capital strength.   The company has several imbedded values that investors should consider when evaluating the company.  The home office building from which we operate is on the books for three to four million dollars; yet its current market value will exceed ten million dollars, thus creating several million dollars of imbedded capital relative to this piece of real estate.  Our data processing administration system, which continues in development, is reflected on the books of the company at a fraction of the value it provides day-in and day-out.  These are a couple of examples of company values not readily seen.  Additional insight to our imbedded values is available in the regulatory documents and filings at the SEC.  These values serve to make us stronger than we might otherwise be viewed.”

CEOCFOinterviews: In closing, why should potential shareholders be interested in your company?

Mr. Riley: “Citizens is a unique company with a dedicated group of life insurance professionals working in a lifelong effort toward building a highly profitable company for its shareholders.   For a company our size, Citizens has a remarkable depth of talent leading its development.  We have people working in the various departments and leadership capacities, at all levels of the company, with many years of experience.  We rely on this exceptional wealth of talent for sound, well-balanced business decisions.

Potential investors should understand we would not make an acquisition or effect a transaction that dilutes shareholder interest in the company.  All company development decisions are directed toward enhancing shareholder value and developing profitability for company owners.  Most of our international policyholders and many of our U.S. policyholders are also stockholders of Citizens, Inc.   We have a dual relationship with many of our owners, because they are also clients.   This unique circumstance also makes Citizens interesting to investors.”


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