WALNUT CREEK, Calif.,
Aug. 4, 2011 /PRNewswire/ -- The PMI
Group, Inc. (NYSE: PMI) today reported a net loss for the second
quarter of 2011 of $134.8 million, or
$0.83 per basic and diluted(1) share,
compared to a loss of $150.6 million,
or $1.11 per basic and diluted share,
for the same period one year ago. Losses from continuing
operations (which excluded a $150.5
million gain on sale in the second quarter) were
$285.3 million, or $1.76 per basic and diluted share, for the second
quarter of 2011 and $150.6 million,
or $1.11 per basic and diluted share,
for the second quarter of 2010.
U.S. Mortgage Insurance Operations
U.S. Mortgage Insurance Operations had a net loss of
$338.4 million for the second quarter
of 2011 compared to a net loss of $115.6
million for the second quarter of 2010. The loss in
the second quarter of 2011 was driven by elevated losses and loss
adjustment expenses LAE, the lack of any material tax benefits and,
to a lesser extent, lower premiums earned.
Lower premiums earned and lower investment income caused total
revenues to decline to $143.0 million
in the second quarter of 2011 from $165.5
million in the second quarter of 2010. New insurance
written in the second quarter of 2011 was $1.4 billion compared to $1.5 billion in the first quarter of 2011 and
$1.6 billion in the second quarter of
2010. As of June 30, 2011,
primary insurance in force was $96.9
billion compared to $99.3
billion at March 31, 2011 and
$107.6 billion at June 30, 2010.
U.S. Mortgage Insurance Operations' losses and LAE increased to
$429.6 million in the second quarter
of 2011 from $239.0 million in the
first quarter of 2011 and $318.6
million in the second quarter of 2010. Of the
$429.6 million of losses and LAE in
the second quarter of 2011, approximately $187.0 million related to reserves on new loan
delinquencies. The remaining approximately $242.6 million of losses and LAE in the second
quarter related to increases in reserve estimates on previously
reported defaults. These changes in estimates were driven by
decreases in expected future claim denials (net of reinstatements)
and, to a lesser extent, claim rate and claim size re-estimations.
The Company decreased its expected future claim denials in
the second quarter as a result of significant recent increases in
the frequency with which servicers have produced documents for
previously denied claims. During the second quarter of 2011,
the Company paid total claims including LAE of $282.4 million compared to $204.6 million in the first quarter of 2011 and
$444.3 million in the second quarter
of 2010. As of June 30, 2011,
reserves for losses and LAE, gross of reinsurance recoverables,
were $3.0 billion compared to
$2.9 billion at March 31, 2011 and $3.0
billion at June 30, 2010.
The number of primary loans in default decreased to 115,742 as
of June 30, 2011 from 119,748 as of
March 31, 2011 and 138,431 as of
June 30, 2010. New notices of
default received in the second quarter of 2011 totaled 22,796
compared to 24,754 in the first quarter of 2011 and 28,597 in the
second quarter of 2010.
The total number of pool loans in default decreased to 13,163 as
of June 30, 2011 compared to 13,769
as of March 31, 2011 and 17,640 as of
June 30, 2010. The significant
decline in pool loans in default from the prior year was due
primarily to the restructuring of modified pool policies.
Rescissions and claim denials of delinquent risk-in-force
totaled $218.8 million in the second
quarter of 2011 compared to $270.1
million in the first quarter of 2011 and $187.4 million in the second quarter of 2010.
The Company's Homeownership Preservation Initiatives ("HPI")
assisted 6,842 borrowers, representing approximately $295 million of risk-in-force, to retain their
homes through loan modifications and payment plans in the second
quarter of 2011. This compares to 5,644 borrowers and
approximately $258 million of
risk-in-force in the first quarter of 2011 and 11,408 borrowers and
approximately $542 million of
risk-in-force in the second quarter of 2010.
International Operations
International Operations, which include, PMI Europe, PMI Canada
and our discontinued Australian and Asian operations, had net
income for the second quarter of 2011 of $138.5 million compared to net income of
$4.6 million in the second quarter of
2010. Net income in the second quarter of 2011 was due to a
gain on sale of discontinued operations, net of taxes, of
$150.5 million as a result of the
Company's recognition of the note issued to the Company in
connection with the sale of its Australian operations in 2008.
PMI Europe's risk-in-force declined to $539 million as of June
30, 2011 from $669 million as
of March 31, 2011 and $1.9 billion as of June
30, 2010. During the second quarter of 2011, PMI
Europe and PMI Canada repatriated $43.3
million and $5.0 million,
respectively, to PMI Mortgage Insurance Co. As of
June 30, 2011, capital remaining in
PMI Europe and PMI Canada was approximately $86.2 million and $12.0
million, respectively.
Corporate and Other
The Corporate and Other segment had net income of $65.1 million in the second quarter of 2011
compared to a net loss of $39.5
million in the same period one year ago. The results
for the second quarter of 2011 included a gain (representing a
decrease in fair market value) of $75.6
million (pre-tax) related to the fair value measurement of
certain corporate debt obligations due to widening credit spreads,
compared to a loss (representing an increase in fair market value)
of $47.7 million (pre-tax) in the
second quarter of 2010.
Regulatory
The Company estimates MIC's policyholders' position was
$320.3 million below the minimum
required by Arizona law and its
risk to capital ratio was 58.1 to 1 as of June 30, 2011. The Company has advised the
Arizona Department of Insurance of MIC's second quarter results and
its non-compliance with the required minimum policyholders'
position. In the near future, the Company expects to further
discuss with the Arizona Department MIC's financial condition and
various capital initiatives the Company is pursuing. PMI
Mortgage Assurance Co., a subsidiary of MIC, is currently writing
new insurance in states in which MIC does not have regulatory
forbearance from applicable minimum capital requirements.
(For a discussion of regulatory issues facing the Company,
please refer to the Company's Report on Form 10-Q for quarter ended
June 30, 2011, filed with the
Securities and Exchange Commission today, August 4, 2011; see also the cautionary
statement, below.)
Capital Initiatives
The Company is exploring alternatives that, if successful, could
provide capital or capital relief to MIC or capital to other
subsidiaries so that they may replace MIC as our primary writer of
new insurance. Such alternatives include the restructuring of
MIC's primary insurance portfolio, debt or equity offerings by our
insurance subsidiaries or holding company, and reinsurance.
The Company may not be able to consummate any capital raising
or capital relief transactions on favorable terms, in a timely
manner or at all.
Liquidity and Tax Information as of June 30, 2011
- On a consolidated basis, the Company had available funds,
consisting of cash and cash equivalents and investments of
$2.9 billion and total shareholders'
equity of $190.5 million.
- MIC had available funds, consisting of cash and cash
equivalents and investments, of $2.3
billion and total assets in captive trust accounts of
approximately $635 million.
- At the holding company level, The PMI Group, Inc. had available
cash and cash equivalents and investments of $69.7 million.
- As of June 30, 2011, the
Company's net deferred tax asset was $44.8
million compared to $143.8
million as of March 31, 2011.
The valuation allowance for the deferred tax asset as of
June 30, 2011 was $688.9 million compared to $578.9 million as of March
31, 2011.
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:
- MIC no longer complies with minimum state regulatory capital
requirements. Without significant additional capital or
capital relief, MIC’s policyholders’ position will continue to
decline, its risk-to-capital ratio will continue to increase, and
its net assets will continue to be reduced.
- MIC’s primary insurance regulator is the Arizona Department of
Insurance (the “Department”). To date, the Department has not
limited MIC’s ability to transact new insurance business. If
the Department were to determine that MIC’s financial condition
warranted regulatory action, it could, among other actions, issue
an administrative order requiring MIC to suspend writing new
business in all states, issue a corrective order and place MIC
under “supervision,” or initiate state court receivership
proceedings for the rehabilitation or liquidation of MIC.
Actions taken by the Department could significantly limit our
control of MIC. We cannot predict if, or under what circumstances
or timing, the Department will take any of the above steps.
However, in the event MIC either does not obtain significant
capital or capital relief or does not demonstrate to the Department
significant progress in connection therewith, we believe it is
likely that the Department, at a minimum, will require MIC to cease
writing new business. If one or more of the above actions
were taken by the Department, our financial condition and results
of operations would be materially adversely affected.
- We may not be able to raise additional capital or achieve
capital relief in order to preserve our ability to continue to
write new insurance business. We are exploring capital
alternatives that, if successful, could provide capital or capital
relief to MIC or capital to other insurance subsidiaries so that
they may replace MIC as our primary writer of new insurance.
The amount of, and need for, additional capital could be
affected by a variety of factors. Our ability to obtain debt
or equity financing is limited as a result of, among other factors,
the substantial decline in our market capitalization, the
downgrades in the ratings of our debt securities and our
significant operating losses, combined with difficult market
conditions generally and in our industry specifically.
Accordingly, we may not be able to raise capital on favorable
terms and in the amounts that we require, or at all.
- In sixteen states, if a mortgage insurer does not meet a
required minimum policyholders’ position (“MPP”) or exceeds a
maximum permitted risk-to-capital ratio of 25 to 1, it may be
prohibited from writing new business. MIC is currently
precluded from writing new insurance business in six states and is
operating under regulatory waivers or discretion in ten states.
Four of MIC’s waivers expire on December 31, 2011 or earlier. Each of the
waivers issued to MIC may be withdrawn at any time by the
applicable insurance department. We expect the number of
states in which MIC is precluded from writing new business to
significantly increase.
- In the third quarter of 2011, we began writing new mortgage
insurance through PMAC in the states in which MIC either did not
obtain, or exceeded the terms of, a waiver or other regulatory
forbearance. The number of states in which we seek to utilize PMAC
for our new business writings is likely to significantly increase.
- Fannie Mae and Freddie Mac (collectively, the “GSEs”) approved
the use of PMAC as a limited, direct issuer of mortgage guaranty
insurance in certain states in which MIC is unable to continue to
write new business. The GSEs’ approvals of PMAC currently
expire on December 31, 2011.
While we have requested extensions, there can be no assurance
that the GSEs will grant them or that the GSEs will not revoke the
PMAC approvals prior to December 31,
2011.
- Fannie Mae’s approval of PMAC is conditioned upon the
requirements that: (1) the Department shall not have required MIC
to cease transacting new business; and (2) PMAC’s direct written
premiums for a calendar quarter not exceed 20% of the combined
direct written premiums of MIC and PMAC for such calendar quarter,
unless Fannie Mae provides prior written consent, which it shall
not unreasonably withhold. PMAC’s direct written premiums
could exceed the 20% limitation in the third quarter of 2011 or
thereafter. If we are unable to satisfy any of the GSE eligibility
requirements for PMAC, if the GSEs do not extend PMAC’s approvals,
or if the GSEs revoke PMAC’s approvals, we would be unable to offer
mortgage insurance through PMAC.
- The risk that the Department could require MIC to cease or
limit making payments to TPG pursuant to the $285 million surplus notes issued by TPG to MIC
in the second quarter of 2010 and under tax sharing and cost
allocation agreements with TPG.
- The risk that an event of default could result under the
indenture governing certain of The PMI Group’s outstanding debt
securities if the Department were to obtain a court order
appointing, or MIC were to consent to the appointment of, a
receiver or similar official of MIC.
- The magnitude of future losses as a result of a variety of
factors that are outside our control and difficult to predict and
the risk that future losses exceed our claims paying ability.
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.
- The level of new delinquencies, the claim rates of
delinquencies and the claim severity within MIC’s mortgage
insurance portfolio.
- Negative economic changes in geographic regions where our
insurance in force is more concentrated.
- 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.
- The risk that the GSEs determine that MIC is no longer an
eligible provider of mortgage insurance and the uncertainty
surrounding the GSEs adoption of revised mortgage insurer
eligibility requirements.
- The risk that certain of our customers could reduce or
eliminate their allocation of new business to PMI.
- The possibility that we may not estimate accurately the
likelihood, magnitude and timing of losses in connection with
establishing loss reserves.
- 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.
- 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.
- 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.
- Effects 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.
- 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.
- 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 potential that we must make additional capital
contributions to our European 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 and Item 1A
of our Quarterly Report on Form 10-Q for the quarters ended
March 31 and June 30, 2011. 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 June 30,
|
|
Six Months
Ended June 30,
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
(Dollars and
shares in thousands, except per share data)
|
|
(Dollars and
shares in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
$
124,784
|
|
$
151,541
|
|
$
249,758
|
|
$
293,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
$
125,603
|
|
$
147,082
|
|
$
245,909
|
|
$
300,112
|
|
|
|
Net gain from credit default
swaps
|
830
|
|
462
|
|
1,614
|
|
2,180
|
|
|
|
Net investment income
|
16,837
|
|
23,861
|
|
33,559
|
|
50,549
|
|
|
|
Equity in losses from
unconsolidated subsidiaries
|
(1,433)
|
|
(3,917)
|
|
(2,732)
|
|
(8,327)
|
|
|
|
Net realized investment
gains
|
194
|
|
397
|
|
113
|
|
7,830
|
|
|
|
Change in fair value of certain
debt instruments
|
75,625
|
|
(47,687)
|
|
97,281
|
|
(88,500)
|
|
|
|
Other income
|
1,178
|
|
2,223
|
|
3,698
|
|
2,228
|
|
|
|
Total revenues
|
219,434
|
|
122,421
|
|
379,442
|
|
266,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment
expenses
|
441,186
|
|
317,920
|
|
682,296
|
|
660,209
|
|
|
|
Amortization of deferred policy
acquisition costs
|
4,467
|
|
4,163
|
|
8,623
|
|
8,039
|
|
|
|
Other underwriting and operating
expenses
|
25,839
|
|
28,032
|
|
53,518
|
|
61,992
|
|
|
|
Interest expense
|
13,577
|
|
12,247
|
|
27,088
|
|
21,770
|
|
|
|
Total losses and
expenses
|
485,069
|
|
362,362
|
|
771,525
|
|
752,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
before income taxes
|
(265,635)
|
|
(239,941)
|
|
(392,083)
|
|
(485,938)
|
|
|
Income tax expense (benefit)
from continuing operations
|
19,651
|
|
(89,381)
|
|
20,027
|
|
(178,391)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
$
(285,286)
|
|
$
(150,560)
|
|
$
(412,110)
|
|
$
(307,547)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued
operations, net of taxes
|
150,520
|
|
-
|
|
150,520
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
(134,766)
|
|
$
(150,560)
|
|
$
(261,590)
|
|
$
(307,547)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss from continuing
operations per share
|
$
(1.76)
|
|
$
(1.11)
|
|
$
(2.55)
|
|
$
(2.81)
|
|
|
Diluted gain on sale of
discontinued operations
per share
|
0.93
|
|
-
|
|
0.93
|
|
-
|
|
|
Diluted net loss per
share
|
$
(0.83)
|
|
$
(1.11)
|
|
$
(1.62)
|
|
$
(2.81)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE PMI
GROUP, INC. AND SUBSIDIARIES
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2010
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
(Dollars and
shares in thousands, except per share data)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
$
2,643,139
|
|
$
2,820,158
|
|
$
2,378,959
|
|
|
|
|
Cash and cash
equivalents
|
|
|
259,302
|
|
267,705
|
|
1,021,841
|
|
|
|
|
Investments in unconsolidated
subsidiaries
|
|
|
119,853
|
|
121,040
|
|
132,670
|
|
|
|
|
Reinsurance
recoverables
|
|
|
391,974
|
|
459,671
|
|
613,646
|
|
|
|
|
Deferred policy acquisition
costs
|
|
|
49,557
|
|
46,372
|
|
44,519
|
|
|
|
|
Property, equipment and
software,
net of accumulated
depreciation and amortization
|
|
|
81,368
|
|
85,186
|
|
93,050
|
|
|
|
|
Deferred tax assets
|
|
|
44,804
|
|
142,899
|
|
282,768
|
|
|
|
|
Note receivable
|
|
|
206,569
|
|
-
|
|
-
|
|
|
|
|
Other assets
|
|
|
217,904
|
|
275,956
|
|
365,656
|
|
|
|
|
Total
assets
|
|
|
$
4,014,470
|
|
$
4,218,987
|
|
$
4,933,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for losses and loss
adjustment expenses
|
|
|
$
2,994,795
|
|
$
2,869,765
|
|
$
3,026,376
|
|
|
|
|
Reserve for premium
refunds
|
|
|
110,785
|
|
88,696
|
|
86,566
|
|
|
|
|
Unearned premiums
|
|
|
68,113
|
|
64,298
|
|
63,508
|
|
|
|
|
Debt
|
|
|
522,128
|
|
616,158
|
|
588,043
|
|
|
|
|
Other liabilities
|
|
|
128,142
|
|
164,800
|
|
214,326
|
|
|
|
|
Total
liabilities
|
|
|
3,823,963
|
|
3,803,717
|
|
3,978,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
190,507
|
|
415,270
|
|
954,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
|
|
$
4,014,470
|
|
$
4,218,987
|
|
$
4,933,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares issued and
outstanding
|
|
|
161,648
|
|
161,168
|
|
160,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
|
|
$
1.18
|
|
$
2.58
|
|
$
5.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Please refer to The PMI Group, Inc. Second Quarter 2011
Financial Supplement for additional information.
SOURCE The PMI Group, Inc.