On Thursday, insurance company Genworth had a major crash on Wall street after its quarterly report announced that it had underestimated its losses after realizing that people on their insurance plans are living longer than they’ve anticipated. Claimants are able to take full advantage of their plan mainly on costs such as living assistance, nursing care and hospice, expenses which are all covered by the insurance company, this resulted in a major loss in profit of $844 million dollars for Genworth.

I thought this is interesting how this is very similar to the case we’ve explored in class where we talked about legacy cost with GM underestimated the enormous profit loss it would have from pension pay outs and high employee retirement funds that was promised to employees decades ago. The executives at the time did not consider the financial consequences it would have on GM years later when those costs finally occur all at once. Similarly in the case of Genworth, decision markers in the company did not anticipate that, with better health care, the average life span of Americans were being prolonged. Genworth  failed to predict  the extent and the margin impact of any methodology and assumptions made previously, and is unsure what its next steps are going to be when faces with this huge profit loss. With all this uncertainty investors are losing confidence in Genworth and causing a huge plummet in stocks.

My prediction is that even if Genworth changes its current policy and the life margins of its insurance, the consequences of the loss in profit will still deeply hurt the company in the near future, because they are unable to change any of the occurred contracts and would have to pay the claimants as long as they live. And investor confidence would have to be rebuilt by really impressive quarterly reports after this depressing news.

Photo credit: http://www.businessinsider.com/genworth-financial-shares-crash-november-6-2014-11