## CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES 

excess cash held at the end of 2015. The Company's cash flows from financing activities were $0.1 million, $2.5 million and $2.5 million in 2018, 2017 and 2016, respectively. 

See "Parent Company Liquidity and Capital Resources" below for a discussion of additional Parent Company liquidity. 

We have established a liability reserve of $10.0 million, net of tax, for probable liabilities and expenses associated with a tax compliance matter as of December 31, 2018 as described in Item 7. "Management's Discussion Analysis of Financial Conditions and Results of Operations", which represents management’s best estimate. We have disclosed an estimated range related to probable liabilities and expenses of $6.0 million to $52.5 million, net of tax. This estimate and range includes projected settlement amounts payable to the IRS, as well as estimated increased payout obligations to current and former holders of non-compliant domestic life insurance policies expected to result from remediation of those policies. The amount of our liabilities and expenses depend on a number of uncertainties, including the number of prior tax years for which we may be liable to the IRS, the number of domestic life insurance policies we will be required to remediate, and the methodology applicable to the calculation of the tax liabilities for policies. Given the range of potential outcomes and the significant variables assumed in establishing our estimates, actual amounts incurred may exceed our reserve and exceed the high end of our estimated range of liabilities and expenses. 

The NAIC has established minimum capital requirements in the form of RBC. RBC considers 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 an 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 control level risk-based capital fall below 200%, a series of remedial actions by the affected company would be required. We have a parental guarantee between Citizens Inc. and CICA to maintain a RBC level above 350%. 

The Bermuda Monetary Authority ("BMA") established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that mandate that a Bermuda domiciled subsidiary’s Enhanced Capital Requirement ("ECR") be calculated by either (a) Bermuda Solvency Capital Requirement ("BSCR"), or (b) an internal capital model that the BMA has approved for use for this purpose. CICA Ltd., Citizens, Inc.'s wholly-owned subsidiary domiciled in Bermuda, uses the BSCR in calculating its solvency requirements. The Economic Balance Sheet (“EBS”) framework is embedded as part of the BSCR and forms the basis of its ECR. 

In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation and in moving towards the implementation of a risk based capital approach, the BMA has established a threshold capital level (termed the Target Capital Level ("TCL")), set at 120 percent of ECR, that serves as an early warning tool for the BMA. Failure to maintain statutory capital at least equal to the TCL would likely result in increased BMA regulatory oversight. 

At December 31, 2018, all of our insurance subsidiaries were above the required minimum RBC levels. 

In 2018, CICA contributed $450,000 in capital to CNLIC and SPLIC contributed $450,000 in capital to MGLIC. In 2017, Citizens made a $5.0 million capital contribution to CICA. In the third quarter of 2017, Citizens contributed $250,000 to CICA Ltd. to capitalize the newly formed Bermuda entity, SPLIC contributed $250,000 in capital to MGLIC, and SPLIC declared a dividend payable to CICA of $395,000 which was paid in 2018. 

On November 1, 2016, SPLIC paid a $20.0 million extraordinary dividend to its parent, CICA. The dividend had no impact on the consolidated financial statements of the Company and was used by CICA for general corporate purposes. The dividend was approved by the Louisiana Department of Insurance, SPLIC’s state of domicile. SPLIC’s risk-based capital after the dividend remains is in excess of minimum capital requirements. 

In the second quarter of 2016, Citizens, Inc. purchased shares of its Class A common stock from CTI with an approximate fair value of $0.8 million. 

