Image source: Genworth.
What: Shares of Genworth Financial Inc. (GNW 1.50%) are trading down by about 11.1% as of 11:35 a.m. EDT on Monday.
So what: As if Genworth Financial didn't have enough on its plate in managing its overleveraged balance sheet, the risk of lower interest rates is seemingly weighing on the company Monday.
The company's long-term care insurance and life insurance business rely on investment returns to generate a profit. On its first quarter 2016 conference call, the company cited a "decline in interest rates" as one of many challenges for its annuity businesses, and suggested lower rates and other factors could drive margins into negative territory.
Now what: Margin pressures on long-dated insurance contracts could continue to weigh on earnings. The company pointed out that a 50 basis point (0.50%) reduction in interest rates or credit spreads would result in a $27 million decrease in earnings in its fixed annuity business. Since the end of the first quarter of 2016, the 10-year U.S. Treasury yield has declined markedly, from about 1.8% to 1.47% at the time of writing.
