Genworth Financial (GNW), a Virginia-based insurance company, has taken a beating over the last year as shares have fallen 76% and are now trading for less than $2.
The most recent drop in share price can be attributed to Fitch Ratings downgrading the company's credit rating to BB+ from BBB, one notch below investment grade. Fitch's ratings action was prompted by Genworth's decision to suspend all sales of its traditional life insurance and fixed annuity products by the end of the first quarter of 2016.
Genworth's announcement came when it released its fourth-quarter earnings results last week in which it reported a loss of $0.44 a share on revenue of $2.16 billion, compared to losses of $1.81 a share in the fourth quarter of 2014.
"Despite the increasingly challenged macro environment and our mixed operating results in the quarter, we remain focused on our key priorities to maintain solid capital ratios, reduce debt levels, enhance holding company liquidity and improve the operating performance of our businesses," CEO Tom McInerney said on a call with analysts.
In addition to suspending its sales in its life insurance and annuity products, the company also announced it plans to isolate its long-term care (LTC) business from its other businesses within the next 12 to 18 months. It is a difficult business to be in as rising health care prices and longer lifespans pressure margins.
"LTC is a long-duration product, and movements in any number of assumptions can significantly impact performance over time," CFO Kelly Groh said on a call with analysts.
While the company is restructuring its business lines, it is also contending with its debt load. Genworth used the proceeds of its lifestyle protection insurance sale to pay off debt in January. Its next note comes due in 2018 and the company spent time on the earnings call discussing how it would handle that. (The note currently trades for 80 cents on the dollar, according to data provided by Thomson Reuters.)
The company believes that separating its LTC business will increase its "financial flexibility" in addressing the note's maturity. Specifically, isolating that business could mean that difficulties in that business would not trigger covenants on the note. Even so, the company announced other potential plans for covering it.
"Should these poor market dynamics persist for the next two years as we move closer to the 2018 maturity, we would have other options to meet it, including utilizing excess cash at the holding company, ongoing subsidiary capital optimization efforts for amounts over solvency ratio targets, or pursuing additional asset sales or block transactions," Groh said on the call.
However, if Genworth's stock continues trading below $2, it could find it has few options.