Why Shares of Genworth Financial Inc. Are Dropping Today

By Markets Fool.com

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What: Shares of Genworth Financial Inc. 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.

The article Why Shares of Genworth Financial Inc. Are Dropping Today originally appeared on Fool.com.

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.