WALNUT CREEK, Calif.,
May 5, 2011 /PRNewswire/ -- The PMI
Group, Inc. (NYSE: PMI) today reported a net loss for the first
quarter of 2011 of $126.8 million, or
$0.79 per basic and diluted(1) share,
compared to a loss of $157.0 million,
or $1.90 per basic and diluted share,
for the same period one year ago. For the first quarter 2011,
the loss before income taxes was $126.4
million compared to a loss before income taxes of
$246.0 million for the first quarter
of 2010.
U.S. Mortgage Insurance Operations
U.S. Mortgage Insurance Operations had a net loss of
$136.3 million for the first quarter
of 2011 compared to a net loss of $121.8
million for the first quarter of 2010. For the first
quarter 2011, U.S. Mortgage Insurance Operations' loss before
income taxes was $135.9 million
compared to a loss of $196.0 million
for the first quarter 2010. The loss in the first quarter of
2011 was due primarily to continued high losses and loss adjustment
expenses ("LAE") and lower premiums earned.
Total revenues were $135.5 million
in the first quarter of 2011 compared to $179.5 million in the first quarter of 2010.
The decrease in the first quarter of 2011 was primarily due
to lower premiums earned, driven by a $17.8
million accrual for premium refunds and a decline in primary
insurance in force, and, to a lesser extent, lower investment
income. The increase in premium refund accrual was due
primarily to an increase in estimated refunds related to rescission
and claim related refunds.
New insurance written in the first quarter of 2011 was
$1.5 billion compared to $2.2 billion in the fourth quarter of 2010 and
$1.0 billion in the first quarter of
2010. As of March 31, 2011,
primary insurance in force was $99.3
billion compared to $101.7
billion at December 31, 2010
and $110.3 billion at March 31, 2010.
U.S. Mortgage Insurance Operations' losses and LAE declined to
$239.0 million in the first quarter
of 2011 from $281.4 million in the
fourth quarter of 2010 and $341.5
million in the first quarter of 2010. During the first
quarter of 2011, the Company paid total claims including LAE of
$204.6 million compared to
$266.6 million in the fourth quarter
of 2010 and $271.0 million in the
first quarter of 2010. As of March 31,
2011, reserves for losses and LAE, gross of reinsurance
recoverables, were $2.86 billion
compared to $2.85 billion at
December 31, 2010 and $3.17 billion at March 31,
2010.
The number of primary loans in default decreased to 119,748 as
of March 31, 2011 from 127,478 as of
December 31, 2010 and 147,248 as of
March 31, 2010. New notices of
default received in the first quarter of 2011 totaled 24,754
compared to 28,664 in the fourth quarter of 2010 and 34,268 in the
first quarter of 2010.
The total number of pool loans in default decreased to 13,769 as
of March 31, 2011 compared to 15,589
as of December 31, 2010 and 25,336 as
of March 31, 2010. The
significant declines in pool loans in default from the prior year
were due primarily to the restructuring of modified pool policies.
Rescissions and claim denials of delinquent risk-in-force
totaled $270.1 million in the first
quarter of 2011 compared to $272.2
million in the fourth quarter of 2010 and $258.4 million in the first quarter of 2010.
The Company's Homeownership Preservation Initiatives (HPI)
enabled 5,644 borrowers, representing approximately $258 million of risk-in-force, to retain their
homes through loan modifications and payment plans in the first
quarter of 2011. This compares to 7,710 borrowers and
approximately $345 million of
risk-in-force in the fourth quarter 2010 and 12,027 borrowers and
approximately $543 million of
risk-in-force in the first quarter 2010. The decrease from
prior periods was primarily driven by the decline in loans in
default and the implementation of a new Fannie Mae workout program
requiring trial payments.
International Operations
International Operations, which include PMI Europe and PMI
Canada, had a net loss for the first quarter of 2011 of
$974,000 compared to net income of
$17,000 in the first quarter of 2010.
The net loss for the first quarter of 2011 was due primarily
to $1.1 million strengthening of loss
reserves in PMI Canada. PMI Europe's risk-in-force declined
to $669 million as of March 31, 2011 compared to $674 million as of December 31, 2010 and $2.1
billion as of March 31, 2010.
In April 2011, PMI Europe
repatriated $14.5 million to MIC.
The Company also has a request for additional capital
repatriation outstanding with regulators at PMI Europe and PMI
Canada. As of March 31, 2011,
capital remaining in PMI Europe and PMI Canada was approximately
$138.7 million and $16.5 million, respectively.
Corporate and Other
The Corporate and Other segment had net income of $10.4 million in the first quarter of 2011
compared to a net loss of $35.2
million in the same period one year ago. The results
for the first quarter of 2011 included a gain (representing a
decrease in fair market value) of $21.7
million (pre-tax) related to the fair value measurement of
certain corporate debt obligations, compared to a loss
(representing an increase in fair market value) of $40.8 million (pre-tax) in the first quarter of
2010.
Capital, Liquidity and Tax Information as of March 31, 2011
- On a consolidated basis, the Company had available funds,
consisting of cash and cash equivalents and investments of
$3.0 billion and total shareholders'
equity of $287.8 million.
- MIC had available funds, consisting of cash and cash
equivalents and investments, of $2.4
billion and total assets in captive trust accounts of
approximately $679 million.
- MIC ended the first quarter of 2011 with excess minimum
policyholders' position of approximately $39
million and a risk to capital ratio of 24.4 to 1.
- On March 30, 2011, MIC's
principal regulator, the Arizona Department of Insurance advised
the Company that under Arizona
law, MIC is not required to obtain a waiver in order to continue to
write new business in the event that it does not maintain the
minimum level of policyholders' position. The Department
noted that it will continue to evaluate, through its current
financial statutory examination and actuarial analysis of MIC and
additional information required to be provided by MIC to the
Department, MIC's minimum policyholders' position along with all
other measures of PMI's business operations and financial position
in assessing its liquidity and financial resources.
- At the holding company level, The PMI Group, Inc. had available
cash and cash equivalents and investments of $70.7 million.
- As of March 31, 2011, the
Company's net deferred tax asset was $143.8
million compared to $142.9
million as of December 31,
2010. The valuation allowance for the deferred tax
asset as of March 31, 2011 was
$578.9 million compared to
$527.3 million as of December 31, 2010.
About The PMI Group, Inc.
The PMI Group, Inc. (NYSE: PMI), headquartered in Walnut Creek, CA, provides innovative credit,
capital, and risk transfer solutions that expand homeownership
while supporting our customers and the communities they serve.
Through its wholly owned subsidiaries, PMI offers residential
mortgage insurance and credit enhancement products. For more
information: www.pmi-us.com.
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 national and regional economic conditions, including
continued slow economic recovery from the most recent recession or
the potential of the U.S. economy to reenter a recessionary period,
unemployment rates, interest rates, borrower access to credit and
home prices.
- Negative economic changes in geographic regions where our
insurance in force is more concentrated;
- 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 levels of future loan modifications, 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.
- As a result of continuing losses, we expect that MIC will be
out of compliance with applicable regulatory requirements in the
second quarter of 2011.
- In sixteen states, so long as a mortgage insurer does not meet
a required minimum policyholders' position ("MPP") or exceeds a
maximum permitted risk-to-capital ratio (generally 25 to 1), it may
be prohibited from writing new business. Two of these states
require a mortgage insurer to immediately cease writing new
business if it exceeds the applicable state capital requirement.
In fourteen other states, including Arizona, MIC's state of domicile, we believe
that regulators exercise discretion as to whether the mortgage
insurer may continue to write new business. As applicable, we have
requested from state insurance departments either waivers of
regulatory capital requirements or clarification that MIC's
inability to comply with capital requirements would not, by itself,
require it to cease writing business in that state.
- On March 30, 2011, in response to
our waiver request, the Department advised us that under the
express requirements of Arizona
law, MIC is not required to obtain a waiver from the Department in
order to continue to write new business in the event that it does
not maintain the required MPP. The Department further advised
that it will continue to evaluate MIC's MPP along with all other
measures of PMI's business operations and financial position in
assessing its liquidity and financial resources. The
Department expects to obtain additional information regarding MIC's
financial position and business operations through its current
financial statutory examination and actuarial analysis of MIC and
from additional information required to be provided by MIC to the
Department. If the Department were to determine that MIC's
liquidity or financial resources warranted regulatory action, it
could, among other actions, order MIC to suspend writing new
business in all states.
- In addition to the Department's notice described above, MIC has
received written waivers from three state departments of insurance.
One of these waivers remains in effect only until MIC exceeds a 27
to 1 risk-to-capital ratio. Each of these waivers may be withdrawn
at any time. We believe that our pending waiver requests in
other states are under review by the applicable state insurance
departments. There is no assurance that MIC will be able to obtain
additional waivers.
- 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.
- If it were to be enforced by a court, the terms of a 1994
Allstate runoff support agreement restrict MIC in the event that
its risk-to-capital ratio exceeds 23 to 1. Any failure to meet the
capital requirements set forth in the runoff support agreement with
Allstate could, if pursued by Allstate, have a material adverse
impact on our financial condition, results of operations and
business.
- The risk that our underwriting policies may not anticipate all
risks and/or the magnitude of potential loss;
- 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 aging of our mortgage insurance portfolio and changes in
severity or frequency of losses associated with our mortgage
insurance policies;
- The possibility that we may not estimate accurately the
likelihood, magnitude and timing of losses in connection with
establishing loss reserves;
- 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 heightened litigation risk relating to rescissions and
claim denials and, in the event that we are unsuccessful in
defending our rescissions or claim denials, the need to establish
loss reserves for, and reassume risk on, delinquent rescinded
loans;
- 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 will substantially exceed,
our loss reserve estimates;
- Further reduction in, or prolonged period of depressed levels
of, home mortgage originations due to reduced liquidity in the
lending market, tighter underwriting standards and the decrease in
housing demand in the U.S.;
- The concentration of our business among a relatively small
number of large customers;
- 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
Fannie Mae and/or Freddie Mac's (collectively, the "GSEs"),
the largest purchasers of mortgages, including potential GSE
reforms Congress may adopt in 2011 and GSE pricing changes
(including the amount of loan level delivery fees assessed by the
GSEs on loans they purchase), which could reduce the demand for our
products;
- The uncertainty surrounding the GSEs adoption of revised
mortgage insurer eligibility requirements and the risk that the
GSEs determine that we are no longer an eligible provider of
mortgage insurance;
- Changes to the current housing finance system as a result of
regulatory or legislative action, including the possibility that
private mortgage insurance is no longer required for GSE-eligible
loans or that the demand for our products and services is severely
reduced;
- Effect of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the "Dodd-Frank Act") on the financial services
industry in general, and on our mortgage insurance business in
particular, including whether and to what extent loans with
mortgage insurance are considered "qualified residential mortgages"
for purposes of the Dodd-Frank Act risk-retention, securitization
provisions;
- Other heightened regulatory and litigation risks faced by the
financial services industry, the mortgage insurance industry and
the Company and MIC;
- Further downgrades or other ratings actions with respect to our
credit ratings or insurer financial strength ratings assigned by
the major rating agencies;
- The potential future impairment of the value of equity or other
securities held in our investment portfolios as a result of
continued 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;
- 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;
- Our ability to return to a period of sustained profitability,
which would allow us to reverse all or a portion of the valuation
allowance that was established against our net deferred tax
asset;
- 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; and
- Potential additional losses in our European operations 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 Annual Report on Form 10-K for the year
ended December 31, 2010. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(Dollars and
shares in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
$
124,973
|
|
$
151,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
$
120,306
|
|
$
153,030
|
|
|
|
|
|
|
Net gain from credit default
swaps
|
784
|
|
1,718
|
|
|
|
|
|
|
Net investment income
|
16,722
|
|
26,688
|
|
|
|
|
|
|
Equity in losses from unconsolidated subsidiaries
|
(1,299)
|
|
(4,410)
|
|
|
|
|
|
|
Net realized investment (losses)
gains
|
(81)
|
|
7,433
|
|
|
|
|
|
|
Change in fair value of certain
debt instruments
|
21,656
|
|
(40,813)
|
|
|
|
|
|
|
Other income
|
1,920
|
|
5
|
|
|
|
|
|
|
Total revenues
|
160,008
|
|
143,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment
expenses
|
241,110
|
|
342,289
|
|
|
|
|
|
|
Amortization of deferred policy
acquisition costs
|
4,156
|
|
3,876
|
|
|
|
|
|
|
Other underwriting and operating
expenses
|
27,679
|
|
33,960
|
|
|
|
|
|
|
Interest expense
|
13,511
|
|
9,523
|
|
|
|
|
|
|
Total losses and
expenses
|
286,456
|
|
389,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
(126,448)
|
|
(245,997)
|
|
|
|
|
|
Income tax expense
(benefit)
|
376
|
|
(89,010)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
(126,824)
|
|
$
(156,987)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per
share
|
$
(0.79)
|
|
$
(1.90)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE PMI
GROUP, INC. AND SUBSIDIARIES
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
March
31,
|
|
|
|
|
|
2011
|
|
2010
|
|
2010
|
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Unaudited)
|
|
|
|
|
|
(Dollars and
shares in thousands, except per share data)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
$
2,831,305
|
|
$
2,820,158
|
|
$
2,299,370
|
|
|
Cash and cash
equivalents
|
|
|
211,497
|
|
267,705
|
|
859,131
|
|
|
Investments in unconsolidated
subsidiaries
|
|
|
119,230
|
|
121,040
|
|
135,241
|
|
|
Reinsurance
recoverables
|
|
|
439,324
|
|
459,671
|
|
666,298
|
|
|
Deferred policy acquisition
costs
|
|
|
48,115
|
|
46,372
|
|
42,642
|
|
|
Property, equipment and
software,
net of accumulated depreciation and amortization
|
|
|
83,234
|
|
85,186
|
|
97,105
|
|
|
Deferred tax assets
|
|
|
143,847
|
|
142,899
|
|
229,660
|
|
|
Other assets
|
|
|
214,604
|
|
275,956
|
|
281,619
|
|
|
Total
assets
|
|
|
$
4,091,156
|
|
$
4,218,987
|
|
$
4,611,066
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Reserve for losses and loss
adjustment expenses
|
|
|
$
2,886,440
|
|
$
2,869,765
|
|
$
3,209,746
|
|
|
Reserve for premium
refunds
|
|
|
106,535
|
|
88,696
|
|
83,997
|
|
|
Unearned premiums
|
|
|
69,012
|
|
64,298
|
|
69,866
|
|
|
Debt
|
|
|
589,859
|
|
616,158
|
|
424,570
|
|
|
Other liabilities
|
|
|
151,464
|
|
164,800
|
|
245,460
|
|
|
Total
liabilities
|
|
|
3,803,310
|
|
3,803,717
|
|
4,033,639
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
287,846
|
|
415,270
|
|
577,427
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
|
|
$
4,091,156
|
|
$
4,218,987
|
|
$
4,611,066
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares issued and
outstanding
|
|
|
161,541
|
|
161,168
|
|
83,006
|
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
|
|
$
1.78
|
|
$
2.58
|
|
$
6.96
|
|
|
|
|
|
|
|
|
|
|
Note: Please refer to The PMI Group, Inc. First Quarter
2011 Financial Supplement for additional information.
SOURCE The PMI Group, Inc.