PMI Pmi Grp. (The) Common Stock

PMI Group Inc. (PMI) reported second-quarter net loss of $1.76 per share, which is wider than the Zacks Consensus Estimate of a loss of 48 cents. Results also deteriorated from the year-ago loss of $1.11 per share.

The quarter continues to suffer due to mortgage losses.

Results include a pre-tax gain of $75.6 million or 47 cents per share representing a decrease in fair market value related to the fair value measurement of certain corporate debt obligations compared with a loss of $47.7 million or 35 cents per share representing a decrease in fair market value in the prior year quarter.

The company, in the quarter under review reported a net loss of $134.8 million or 83 cents per share, wider than the net loss of $150.6 million or $1.11 per share in the year-ago quarter.

Operational Performance

Net premiums written in the quarter were $124.8 million, down 18% from $151.5 million in the prior-year quarter.

Premiums earned were $125.6 million in the quarter under review, down 15% from $147.1 million in the prior-year quarter.

Net investment income dipped 29% year over year to $16.8 million in the quarter.

Total losses and expenses escalated 34% year over year to $485.1 million in the quarter. Substantially higher losses and loss adjustment expenses, higher amortization of deferred policy acquisition costs and higher interest expenses led to the overall climb.

Segment Update

U.S. Mortgage Insurance Operations: Total revenues decreased 13.6% year over year to $143 million in the second quarter. Lower premiums earned and lower investment income resulted in the overall decline.

Losses and loss adjustment expenses surged 80% year over year to $429.6 million in the second quarter.

Segment net loss widened to $338.4 million from a net loss of $115.6 million in second-quarter 2010 largely due to continued high losses and loss adjustment expenses and lower premiums earned.

International Operations: Net income in the quarter was $138.5 million, compared with a net income of $4.6 million in the prior year quarter. The result includes a gain on sale of Australian and Asia operations, net of taxes, of $150.5 million.

Corporate and Other: The segment reported a net income of $65.1 million in the quarter, reversing the loss of $39.5 million in the prior year quarter.

Financial Update

Cash and cash equivalents at the end of the quarter were $259.3 million, much lower than $2.38 billion at the end of the prior-year quarter.

Debt decreased to $522.1 million from $588 million at first quarter 2010 end.

Book value per share was $1.18 as of June 30, 2011, plummeting 80% from $5.94 as of June 30, 2010.

Peer Comparison

MGIC Investment Corp. (MTG), which competes with PMI Group, reported a second quarter 2011 operating loss of 86 cents per share, significantly lagging the Zacks Consensus Estimate of a profit of 5 cents. It is reflective of the repercussions the company continues to face in the U.S housing market fiasco. 

Shares of PMI Group plummeted 53% to close at 41 cents on Thursday as PMI Group disclosed its concerns to close down its operations. The company stated that it is not able to sell new policies. To add to its woes, Arizona based PMI Mortgage Insurance Co., the main subsidiary, is short of funds required to meet regulatory requirements in Arizona. As such, the State insurance department will likely bar it from selling new policies, resulting in either rehabilitation or liquidation of the unit.

We keep an Underperform recommendation on PMI Group over the long term. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term.

 
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