WALNUT CREEK, Calif.,
Oct. 28 /PRNewswire-FirstCall/ --
- The PMI Group, Inc. (the "Company") reported a loss from
continuing operations in the third quarter of 2010 of $281.1 million, or $1.74 per share.
- Third quarter results included a non-cash provision of
$200.2 million as a result of an
increase in the Company's deferred tax asset valuation allowance.
The provision was recorded as an increase in tax expense in
the Company's GAAP financial statements. However, it did not affect
its statutory financial statements.
- The Company realized net investment gains of approximately
$83.2 million (pre-tax), or
$0.34 per share (after tax),
primarily as a result of municipal bonds sales during the third
quarter of 2010 in connection with the strategic repositioning of
its investment portfolio from tax exempt securities to securities
that provide taxable investment income.
- New insurance written increased for the third consecutive
quarter to approximately $2.0 billion
in the third quarter of 2010.
- U.S. Mortgage Insurance's primary loans in default declined to
131,891 as of September 30, 2010 from
138,431 as of June 30, 2010 due
primarily to an increase in the number of primary claims paid and
continued cures.
- Consolidated reserves for losses and loss adjustment expenses
at September 30, 2010 declined to
$3.0 billion compared to $3.1 billion at June 30,
2010 due to higher paid claims and a decline in the default
inventory, offset by an increase in reserves due to lower than
expected cure rates and the aging of defaults in the portfolio.
- The Company had consolidated cash and cash equivalents and
investments of $3.3 billion and total
assets in captive trust accounts of approximately $833.1 million at September 30, 2010.
- PMI Mortgage Insurance Co. ("MIC") ended the third quarter of
2010 with excess minimum policyholders' position of approximately
$332 million and a risk to capital
ratio of approximately 17.2 to 1.
The PMI Group, Inc. (NYSE: PMI) today reported a loss from
continuing operations for the third quarter of 2010 of $281.1 million, or $1.74 per basic and diluted(1) share, compared
with a loss from continuing operations of $87.9 million, or $1.06 per basic and diluted share, for the same
period one year ago. For the first nine months of 2010, the
Company reported a loss from continuing operations of $588.7 million, or $4.64 per basic and diluted share, compared to a
loss from continuing operations of $425.8
million, or $5.18 per basic
and diluted share in the first nine months of 2009.
The PMI
Group, Inc. Third Quarter Results
|
|
|
|
Three Months
Ended September 30,
|
|
|
(Dollars in thousands, except
per share data)
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
$(281,103)
|
|
$(87,920)
|
|
|
Loss from discontinued
operations, net of income taxes*
|
--
|
|
(5,312)
|
|
|
Net loss
|
$(281,103)
|
|
$(93,232)
|
|
|
|
|
|
|
|
|
Diluted loss from continuing
operations per share
|
$(1.74)
|
|
$(1.06)
|
|
|
Diluted loss from discontinued
operations per share*
|
--
|
|
(0.07)
|
|
|
Diluted net loss per
share
|
$(1.74)
|
|
$(1.13)
|
|
|
* Includes the
2009 effects of former subsidiaries PMI Australia, PMI Asia and
PMI Guaranty.
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|
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|
The PMI
Group, Inc. Year-to-Date Results
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|
|
|
Nine Months
Ended September 30,
|
|
|
(Dollars in thousands, except
per share data)
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
$(588,650)
|
|
$(425,808)
|
|
|
Loss from discontinued
operations, net of income taxes*
|
--
|
|
(5,335)
|
|
|
Net loss
|
$(588,650)
|
|
$(431,143)
|
|
|
|
|
|
|
|
|
Diluted loss from continuing
operations per share
|
$(4.64)
|
|
$(5.18)
|
|
|
Diluted loss from discontinued
operations per share*
|
--
|
|
(0.06)
|
|
|
Diluted net loss per
share
|
$(4.64)
|
|
$(5.24)
|
|
|
* Includes the 2009 effects of
former subsidiaries PMI
Australia, PMI Asia and PMI Guaranty.
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|
U.S. Mortgage Insurance Operations
U.S. Mortgage Insurance Operations had a net loss of
$251.6 million in the third quarter
of 2010 compared to a net loss of $110.6
million in the third quarter of 2009. The loss in the
third quarter of 2010 was due primarily to an increase in the
valuation allowance with respect to deferred tax assets and
continued high loss and loss adjustment expenses ("LAE") which were
partially offset by realized investment gains.
The deferred tax asset valuation allowance increased by
$181.0 million in the third quarter
of 2010 to $434.0 million. The
increase in the third quarter of 2010 was primarily due to the
Company's loss development in recent periods that has been more
adverse than its expectations. In light of the recent adverse loss
development and future uncertainties, the Company evaluated its
deferred tax asset and determined that it was necessary under
current accounting guidance to increase the valuation
allowance.
Total revenues were $235.9 million
in the third quarter of 2010 compared to $207.6 million in the third quarter of 2009.
The increase in the third quarter of 2010 was primarily due
to the net realized investment gains which offset lower premiums
earned.
New insurance written in the third quarter of 2010 was
$2.0 billion, compared to
$1.2 billion in the third quarter of
2009. At September 30, 2010,
primary insurance in force was $104.6
billion compared to $116.9
billion at September 30, 2009.
U.S. Mortgage Insurance Operations' losses and LAE were
$317.1 million in the third quarter
of 2010 compared to $334.6 million in
the third quarter of 2009. During the third quarter of 2010,
the Company paid total claims including LAE of $322.7 million and, as a result, the ending
reserves for losses and LAE, gross of reinsurance recoverables, was
$3.0 billion compared to $3.1 billion at June 30,
2010.
The number of primary loans in default decreased to 131,891 at
September 30, 2010 from 150,925 at
December 31, 2009 and 141,261 at
September 30, 2009. New notices
of default received in the third quarter of 2010 totaled 29,715
compared to 37,835 in the fourth quarter of 2009 and 41,359 in the
third quarter of 2009. The primary default rate, measured as
a percentage of primary policies in force (which have declined in
recent quarters), was 20.37% at September
30, 2010 compared to 21.40% at December 31, 2009 and 19.48% at September 30, 2009.
The total number of pool loans in default decreased to 15,970 at
September 30, 2010 from 51,104 at
December 31, 2009 and 52,158 at
September 30, 2009. The decline
compared to the fourth quarter of 2009 and the one year ago period
was due primarily to the restructuring of certain modified pool
policies.
Rescission and claim denial of delinquent risk in force totaled
$208.8 million in the third quarter
of 2010 compared to $217.0 million in
the fourth quarter of 2009 and $228.5
million in the third quarter of 2009.
The Company's Homeownership Preservation Initiatives (HPI)
enabled 9,674 borrowers, representing $451.1
million of risk in force, to retain their homes through loan
modifications and payment plans in the third quarter of 2010.
As of September 30, 2010,
approximately 10,739 loans insured by PMI were in a Home Affordable
Modification Program (HAMP) trial period compared to 18,079 loans
as of June 30, 2010. In
addition, HPI enabled 2,492 homeowners in the third quarter of 2010
to avoid foreclosure through alternatives such as short sales. In
total, 18% of primary loans in default were enrolled in HAMP or
non-HAMP workout programs.
International Operations
International Operations, which include PMI Europe and PMI
Canada, had net income from continuing operations for the third
quarter of 2010 of $2.6 million
compared to net income from continuing operations of $27.4 million in the third quarter of 2009.
Net income for the third quarter of 2009 was higher due to a
net gain from credit default swap transactions and certain income
tax benefits. PMI Europe's risk in force was $2.0 billion at September
30, 2010 compared to $5.3
billion at September 30, 2009.
Corporate and Other
The Corporate and Other segment had a net loss of $32.2 million in the third quarter of 2010
compared to a net loss of $4.7
million in the same period one year ago. The results
for the third quarter of 2010 include an increase in the valuation
allowance associated with deferred taxes of approximately
$19 million and a loss (representing
an increase in fair market value) of $5.1
million (pre-tax) related to the fair value measurement of
certain corporate debt obligations compared to a gain (representing
a decrease in fair market value) of $3.1
million (pre-tax) in the third quarter of 2009.
Capital and Liquidity Information as of September 30, 2010
- On a consolidated basis, the Company had available funds,
consisting of cash and cash equivalents and investments of
$3.3 billion and total shareholders'
equity of $661.9 million.
- At the holding company level, The PMI Group, Inc., had
available cash and cash equivalents and investments of $78.5 million.
- MIC had available funds, consisting of cash and cash
equivalents and investments, of $2.6
billion and total assets in captive trust accounts of
approximately $833.1 million.
- During the third quarter of 2010, MIC restructured certain
modified pool policies resulting in the acceleration of
approximately $27.0 million for a
payment to the counterparty and the elimination of the remaining
$183.7 million of risk in force under
the policies. The amount of the payment to the counterparty
was included in third quarter 2010 losses and LAE.
About The PMI Group, Inc.
Cautionary Statement: Statements in this press release and
supplement that are not historical facts, or that relate to future
plans, events or performance, are "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. Readers are cautioned that forward-looking
statements by their nature involve risk and uncertainty because
they relate to events and depend on circumstances that will occur
in the future. Many factors could cause actual results and
developments to differ materially from those expressed or implied
by forward-looking statements. Such factors include, among
others:
- Potential significant future losses as a result of a variety of
factors that are outside our control and difficult to predict.
Among other factors affecting future losses and that could
cause losses to increase more rapidly or to higher levels than
expected are the following:
- Future economic conditions, including unemployment rates,
interest rates and home prices.
- The level of new delinquencies, the cure and claim rates of
delinquencies (including the level of future modifications of
delinquent loans) and the claim severity within MIC's mortgage
insurance portfolio.
- The level of future rescissions and claim denials and future
reversals of rescissions and claim denials.
- The timing of future claims paid.
- Future levels of new insurance written (and the profitability
of such business), which will impact future premiums written and
earned and future losses.
- Increased losses or an acceleration of expected losses could
cause PMI to be out of compliance with applicable regulatory
requirements.
- In sixteen states, so long as a mortgage insurer does not meet
a required minimum policyholders' position or exceeds a maximum
permitted risk-to-capital ratio (generally 25 to 1), it may be
prohibited from writing new business. In some states,
including Arizona, MIC's state of
domicile, the applicable regulator has discretion as to whether the
mortgage insurer may continue to write new business.
- In the event that we are unable to write new mortgage insurance
in a limited number of states for the reasons discussed above, we
have a plan to enable us to write new mortgage insurance in those
states out of an existing subsidiary, PMI Mortgage Assurance Co.
There can be no assurance that we will be able to effectuate
this plan.
- Our expectation that, because our loss reserves are not
intended to be an estimate of total future losses, our ultimate
actual losses will be higher than, and could substantially exceed,
our loss reserve estimates;
- The risk that our underwriting policies may not anticipate all
risks and/or the magnitude of potential loss;
- The limitations we have placed on new business writings and
certain mortgage and private mortgage insurance market conditions,
which have negatively impacted the private mortgage insurance
industry;
- The potential litigation risk associated with our rescission
activity and, in the event that we are unsuccessful in defending
our rescissions, the need to establish loss reserves for, and
reassume risk on, delinquent rescinded loans;
- The risk that we overestimate the number of loans that
ultimately cure, which management factors in when establishing loss
reserve estimates, and which could result in loss reserves that are
insufficient to cover our losses on existing delinquent loans;
- The aging of our mortgage insurance portfolio and changes in
severity or frequency of losses associated with our mortgage
insurance policies;
- The performance of our insured portfolio of higher risk loans,
such as Alternative-A ("Alt-A") and less than-A quality loans, and
adjustable rate and interest-only loans, which have resulted in
increased losses in prior periods and are expected to result in
further losses;
- The risk that we may not be able to realize all of our deferred
tax assets and may be required to record a full valuation allowance
or increase the current partial valuation allowance against our
remaining net deferred tax assets;
- The risk that Fannie Mae and/or Freddie Mac (collectively, the
"GSEs") determine that we are no longer an eligible provider of
mortgage insurance;
- The risk that the value of the contingent note we received in
connection with the sale of PMI Australia is reduced and,
therefore, reduces or eliminates the commitments of the lenders
under our credit facility and requires us to repay amounts borrowed
under the credit facility;
- Further downgrades or other ratings actions with respect to our
credit ratings or insurer financial strength ratings assigned by
the major rating agencies;
- Heightened competition from the Federal Housing Administration
and the Veterans' Administration or other private mortgage
insurers;
- Potential changes in the charters or business practices of the
GSEs, the largest purchasers of mortgages;
- The potential future impairment of the value of equity or other
securities held in our investment portfolios as a result of the
significant volatility in the capital markets;
- Volatility in our earnings caused by changes in the fair value
of our derivative contracts and our need to reevaluate the premium
deficiencies in our mortgage insurance business on a quarterly
basis;
- Heightened regulatory and litigation risks faced by the
financial services industry, the mortgage insurance industry and
the Company and MIC; and
- Potential additional losses in our European operations as a
result of deteriorating economic conditions and the potential that
we must make additional capital contributions to those operations,
and/or CMG Mortgage Insurance Company, pursuant to capital support
agreements.
Other risks and uncertainties are discussed in our SEC filings,
including in Item 1A of our Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2010 and
June 30, 2010, and our Annual Report
on Form 10-K for the year ended December 31, 2009. We
undertake no obligation to update forward-looking statements.
(1) Due to the net loss in the quarter, dilutive components of
shares outstanding such as stock options were not included in fully
diluted shares outstanding as their inclusion would have been
anti-dilutive.
THE PMI
GROUP, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
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|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
(Dollars and
shares in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
$ 139,357
|
|
$ 167,362
|
|
$ 443,723
|
|
$ 521,932
|
|
|
|
|
|
|
|
|
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|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
$ 139,831
|
|
$ 176,572
|
|
$ 451,047
|
|
$ 546,266
|
|
|
Net gain from credit default
swaps
|
2,249
|
|
9,248
|
|
4,429
|
|
24,007
|
|
|
Net investment income
|
13,637
|
|
25,980
|
|
64,186
|
|
89,701
|
|
|
Equity in losses from
unconsolidated subsidiaries
|
(3,059)
|
|
(4,377)
|
|
(11,386)
|
|
(8,215)
|
|
|
Net realized investment
gains
|
83,151
|
|
11,921
|
|
90,981
|
|
29,262
|
|
|
Change in fair value of certain
debt instruments
|
(5,125)
|
|
3,125
|
|
(93,625)
|
|
(17,478)
|
|
|
Other income
|
2,209
|
|
13
|
|
4,437
|
|
2,328
|
|
|
Total revenues
|
232,893
|
|
222,482
|
|
510,069
|
|
665,871
|
|
|
|
|
|
|
|
|
|
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment
expenses
|
314,784
|
|
336,778
|
|
986,098
|
|
1,200,566
|
|
|
Amortization of deferred policy
acquisition costs
|
4,637
|
|
4,151
|
|
12,676
|
|
11,249
|
|
|
Other underwriting and operating
expenses
|
31,420
|
|
34,569
|
|
93,186
|
|
114,342
|
|
|
Interest expense
|
13,393
|
|
9,338
|
|
35,163
|
|
32,921
|
|
|
Total losses and
expenses
|
364,234
|
|
384,836
|
|
1,127,123
|
|
1,359,078
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
before income taxes
|
(131,341)
|
|
(162,354)
|
|
(617,054)
|
|
(693,207)
|
|
Income tax expense (benefit)
from continuing operations
|
149,762
|
|
(74,434)
|
|
(28,404)
|
|
(267,399)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
(281,103)
|
|
(87,920)
|
|
(588,650)
|
|
(425,808)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations, net of taxes
|
--
|
|
(5,312)
|
|
--
|
|
(5,335)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$ (281,103)
|
|
$ (93,232)
|
|
$ (588,650)
|
|
$ (431,143)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss from continuing
operations per share
|
$ (1.74)
|
|
$ (1.06)
|
|
$ (4.64)
|
|
$ (5.18)
|
|
Diluted loss from discontinued
operations per share
|
--
|
|
(0.07)
|
|
--
|
|
(0.06)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per
share
|
$ (1.74)
|
|
$ (1.13)
|
|
$ (4.64)
|
|
$ (5.24)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE PMI
GROUP, INC. AND SUBSIDIARIES
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
September
30,
|
|
December
31,
|
|
September
30,
|
|
|
|
|
2010
|
|
2009
|
|
2009
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Unaudited)
|
|
|
|
|
(Dollars and
shares in thousands,
except per share
data)
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments
|
|
$ 2,216,026
|
|
$ 2,572,533
|
|
$ 2,814,061
|
|
|
Cash and cash
equivalents
|
|
1,098,940
|
|
686,891
|
|
844,265
|
|
|
Investments in unconsolidated
subsidiaries
|
|
132,064
|
|
139,775
|
|
147,024
|
|
|
Reinsurance
recoverables
|
|
522,116
|
|
703,550
|
|
659,356
|
|
|
Deferred policy acquisition
costs
|
|
46,115
|
|
41,289
|
|
42,266
|
|
|
Property, equipment and
software,
net of accumulated
depreciation and amortization
|
|
89,176
|
|
101,893
|
|
107,886
|
|
|
Deferred tax assets
|
|
142,000
|
|
178,623
|
|
110,701
|
|
|
Other assets
|
|
366,683
|
|
216,963
|
|
213,403
|
|
|
Total
assets
|
|
$ 4,613,120
|
|
$ 4,641,517
|
|
$ 4,938,962
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Reserve for losses and loss
adjustment expenses
|
|
$ 3,015,166
|
|
$ 3,253,820
|
|
$ 3,175,027
|
|
|
Unearned premiums
|
|
63,490
|
|
72,089
|
|
87,088
|
|
|
Debt
|
|
588,453
|
|
389,991
|
|
417,757
|
|
|
Other liabilities
|
|
284,147
|
|
198,530
|
|
275,982
|
|
|
Total
liabilities
|
|
3,951,256
|
|
3,914,430
|
|
3,955,854
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
661,864
|
|
727,087
|
|
983,108
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
|
$ 4,613,120
|
|
$ 4,641,517
|
|
$ 4,938,962
|
|
|
|
|
|
|
|
|
|
|
Basic shares issued and
outstanding
|
|
161,162
|
|
82,580
|
|
82,573
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
|
$ 4.11
|
|
$ 8.80
|
|
$ 11.91
|
|
|
|
|
|
|
|
|
|
Note: Please refer to The PMI Group, Inc. Third Quarter 2010
Financial Supplement for additional information.
SOURCE The PMI Group, Inc.
Copyright . 28 PR Newswire