Table of Contents CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Policyholder Dividends. Policyholders' dividends increased 1.4% and decreased 8.1%, respectively in 2018 and 2017, due to the dividend rate actions taken by us at the end of 2016 to improve our product profitability which lowered our expense 36.7% from $10.7 million in 2015 to $6.8 million, $6.2 million and $6.3 million for the years ended 2016, 2017 and 2018, respectively. The Company issues long duration participating policies to foreign residents that are expected to pay dividends to policyholders based upon actual experience. The life company boards approve any dividends on an annual basis and may change the dividend rates as needed for business purposes. Policyholder dividends are factored into the premiums at the time the product is developed and therefore have no impact on expected profitability. Commissions. Commission expenses decreased 22.1% from 2017 to 2018 in line with the reduction in premiums. Commission expense increases or decreases are directly related to increases or decreases in premiums. First year policy premiums pay a higher commission rate than renewal policy premiums. Other General Expenses. Expenses increased 0.7% to $18.7 million in 2018 compared to 2017 and 30.2% to $18.6 million in 2017 compared to 2016. The increase expense levels in both 2018 and 2017 were due primarily to increased consulting and audit fees, as well as higher salaries, bonuses and related employee benefits paid to top executives. The expenses are allocated by segment, based upon an annual expense study performed by the Company. Capitalization and Amortization of Deferred Policy Acquisition Costs. Capitalized costs fluctuate in direct relation to commissions. Capitalized costs decreased as commission-related costs decreased in 2018 compared to 2017 and 2016 based upon lower first year and renewal sales levels. Amortization of DAC increased in 2018 by 18.3% from 2017, which primarily resulted from the AXIS actuarial system conversion changes in estimates due to refinements impacting amortization by $3.7 million in 2018, and as we experienced increased surrender activity in 2018, including early duration elections to convert to reduced paid-up policies or extended term insurance as compared to 2017 and 2016. There are higher deferred acquisition costs associated with early duration conversions to reduced paid-up policies or extended term insurance, which, when converted, increases amortization expense. 44