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The PMI Group, Inc. Reports Third Quarter 2009 Financial Results
WALNUT CREEK, Calif., Nov. 6 /PRNewswire-FirstCall/ -- The PMI Group, Inc. (NYSE: PMI) (the "Company") today reported a loss from continuing operations for the third quarter of 2009 of $87.9 million, or $1.06 per basic and diluted(1) share, compared with a loss from continuing operations of $149.3 million, or $1.83 per basic and diluted(1) share, for the same period one year ago. The loss from continuing operations for the third quarter of 2009 was primarily driven by losses and loss adjustment expenses (LAE) in U.S. Mortgage Insurance Operations, decreases in U.S. Mortgage Insurance Operations' premiums earned and investment income, and the change of the fair value of certain holding company senior debt.
The PMI Group, Inc. Third Quarter Results
-----------------------------------------
Three Months Ended
September 30,
(Dollars in thousands, except per share
data) 2009 2008
--------------------------------------- ---- ----
Loss from continuing operations $(87,920) $(149,309)
Loss from discontinued operations, net of
income taxes* (5,312) (80,104)
------- --------
Net loss $(93,232) $(229,413)
========= ==========
Diluted loss from continuing operations per
share $(1.06) $(1.83)
Diluted loss from discontinued operations
per share (0.07) (0.98)
------ ------
Diluted net loss per share $(1.13) $(2.81)
-------------------------- ======= =======
* Includes the results of PMI Australia, PMI Asia and PMI Guaranty.
The PMI Group, Inc. 2009 Year-to-Date Results
---------------------------------------------
Nine Months Ended
September 30,
(Dollars in thousands, except per share
data) 2009 2008
--------------------------------------- ---- ----
Loss from continuing operations $(425,808) $(706,195)
Loss from discontinued operations, net of
income taxes* (5,335) (43,468)
------- --------
Net loss $(431,143) $(749,663)
========== ==========
Diluted loss from continuing operations
per share $(5.18) $(8.68)
Diluted loss from discontinued operations
per share (0.06) (0.54)
------ ------
Diluted net loss per share $(5.24) $(9.22)
-------------------------- ======= =======
* Includes the results of PMI Australia, PMI Asia and PMI Guaranty.
Key Financial Information
-- Consolidated net premiums written for the third quarter and first nine
months of 2009 totaled $167.4 million and $521.9 million, respectively,
compared with $176.5 million and $591.4 million for the same period last
year. The decreases were primarily due to lower levels of new insurance
written and higher refunded premiums from rescissions of insurance
previously written.
-- Consolidated losses and LAE, which includes paid claims, loss adjustment
expenses and additions to reserve for losses, for the third quarter and
first nine months of 2009 were $336.8 million and $1.2 billion,
respectively, compared with $382.7 million and $1.5 billion for the same
periods one year ago. The decreases in the third quarter and first nine
months of 2009 compared with the same periods one year ago were
primarily due to reduced levels of reserve increases in the third
quarter of 2009 driven by the negotiated acceleration of certain claims
associated with modified pool insurance restructurings.
-- Consolidated reserve for losses and LAE, gross of reinsurance
recoverables, totaled $3.2 billion as of September 30, 2009 compared
with $3.2 billion as of June 30, 2009 and $2.5 billion as of September
30, 2008. In the U.S. Mortgage Insurance Operations segment, ending
reserves for losses and LAE for primary insurance increased in the third
quarter of 2009 by $134.0 million to $2.7 billion. The increase in
primary insurance reserves for losses and LAE was primarily due to
higher default inventories and higher average claim rates, partially
offset by lower average primary claim sizes and the continued effect
from rescission activity. Ending reserves for losses and LAE for pool
insurance decreased in the third quarter of 2009 by $181.1 to $421.2
million. The decrease in pool insurance loss reserves was due to the
restructuring of certain modified pool policies.
-- Consolidated other underwriting and operating expenses for the third
quarter and first nine months of 2009 were $34.6 million and $114.3
million, respectively, compared with $59.4 million and $160.0 million
from the same periods last year. The decrease in other underwriting and
operating expenses in the third quarter of 2009 compared to the
corresponding period in 2008 was primarily due to a decrease in payroll
and related expenses.
-- International Operations had net income from continuing operations for
the third quarter and first nine months of 2009 of $27.4 million and
$20.7 million, respectively, compared with a loss from continuing
operations of $46.0 million and $56.8 million from the same periods last
year. The increase in the third quarter of 2009 was primarily as a
result of PMI Europe's net income of $27.9 million as a result of a net
gain of $9.2 million from credit default swap transactions and a federal
income tax benefit related to refinements to the Company's tax estimates
in connection with the filing of the Company's 2008 tax return.
Capital and Liquidity Information at September 30, 2009
-- On a consolidated basis, The PMI Group, Inc. had available funds,
consisting of cash and cash equivalents and investments, of $3.7 billion
and total shareholders' equity of $1.0 billion.
-- PMI's holding company had available funds, consisting of cash and cash
equivalents and investments, of $64.4 million.
-- PMI Mortgage Insurance Co. ("MIC") had available funds, consisting of
cash and cash equivalents and investments, of $3.4 billion and total
assets in captive trust accounts of approximately $920.7 million.
-- MIC's risk to capital was 18.5 to 1 and it held $215.2 million in excess
of the required minimum policyholders position compared to 19.6 to 1 and
$186.4 million, respectively, at June 30, 2009.
-- During the third quarter of 2009, the Company completed the following
capital relief initiatives: (1) restructurings (including commutation
and other restructuring) of certain modified pool policies resulted in
an acceleration of claims paid at a discount of the reserves established
on such policies and the release of loss reserves, which resulted in
positive statutory capital benefits of approximately $77.9 million, (2)
interaffiliate excess of loss reinsurance agreements whereby MIC entered
into three excess of loss reinsurance agreements with three affiliated
reinsurance companies and resulted in an increase to MIC's excess MPP of
approximately $41 million, and (3) realization of approximately $20
million in gains from the Company's investment portfolio, primarily
municipal bonds.
-- During the third quarter of 2009, the states Arizona and California
adopted legislation effective November 24, 2009 and January 1, 2010,
respectively, giving the respective state's insurance regulator
discretion as to whether a mortgage insurer may continue writing new
business if it does not meet a required minimum policyholder's position
or it exceeds a maximum permitted risk-to-capital ratio (generally 25 to
1). The state of North Carolina had previously passed similar
legislation which became effective on July 1, 2009.
-- In the event that MIC is unable to write new mortgage insurance in a
limited number of states, the Company is working on a plan to enable the
writing of new mortgage insurance in those states through an existing
subsidiary, currently known as Commercial Loan Insurance Corporation
("CLIC"), to be renamed PMI Mortgage Assurance Co. ("PMAC"). During the
third quarter, the Company had preliminary discussions with the Arizona
and Wisconsin Departments of Insurance and Fannie Mae and Freddie Mac
regarding PMAC.
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 and fund essential services for 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 supplements 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 changes in economic
and market conditions, such as decreases in housing demand, mortgage
originations or housing values; a further reduction in the liquidity in
the capital markets or further contraction of credit markets; further
increases in unemployment rates; changes in interest rates or consumer
confidence; and/or changes in credit spreads;
-- the potential that our actual losses may substantially exceed our
current loss reserve estimates or that our underwriting policies may not
anticipate all risks and/or the magnitude of potential loss;
-- our expectation that, as a result of continued losses, we will need to
raise significant additional capital and/or achieve significant
statutory capital relief in 2009;
-- the risk that we may be required to cease writing new business in some
or all states due to our financial condition and/or our inability to
maintain minimum regulatory risk-to-capital and policyholders surplus
requirements;
-- Some states require a mortgage insurer to immediately cease writing
new business if it fails to meet applicable capital adequacy
requirements. In other states, including Arizona as of November 24,
2009, PMI's state of domicile, the applicable regulator has
discretion as to whether the mortgage insurer may continue to write
new business. The Arizona Department of Insurance is conducting a
limited scope examination of PMI to determine, among other things,
whether to exercise discretion and permit PMI to continue writing
new business in the event that PMI fails to maintain Arizona's
minimum policyholders position. If we fail to meet the minimum
policyholders position required by Arizona law and the Arizona
Department of Insurance does not exercise discretion to permit PMI
to continue to write new business, we would be required to suspend
writing new business in all states. Even if an insurance regulator
were to exercise discretion in one state, we may be unable to write
new business in other states.
-- We are in discussions with one state regarding its interpretation of
that state's financially hazardous condition regulation generally
applicable to licensed insurance companies and that state's
interpretive position that PMI is in violation of that regulation.
If we are unsuccessful in those discussions, we may be required to
cease writing business in that state. Although no other state has
taken a similar interpretative position to date, there can be no
assurance that other states, most of which have similar regulations,
will not take similar interpretative positions.
-- Under the terms of our runoff support agreement with Allstate
Insurance Company, PMI is subject to restrictions that apply if its
risk-to-capital ratio exceeds 23:1. Any failure to meet the capital
requirements set forth in the runoff support agreement could, if
pursued by Allstate, have a material adverse impact on our financial
condition;
-- In the event that we are unable to write new mortgage insurance in a
limited number of states for the reasons discussed above, we working
on a plan to enable us to write new mortgage insurance in those
states out of an existing subsidiary. There can be no assurance
that we will be able to effectuate this plan.
-- the limitations we have placed on new business;
-- the potential litigation risk associated with our increased rescission
activity and, in the event that we are unsuccessful in defending our
rescission decisions, the need to establish loss reserves for, and
reassume risk on, delinquent rescinded loans;
-- the risk that loan modification and other similar programs may not
provide material benefits to us;
-- 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 loans, and adjustable rate and
interest-only loans, which have resulted in increased losses in 2007 and
2008 and are expected to result in further losses;
-- the risk that Fannie Mae and/or Freddie Mac (collectively, the "GSEs")
determine that we are no longer an eligible provider of mortgage
insurance;
-- changes in persistency rates of our mortgage insurance policies caused
by, among other things, changes in refinancing activity and home values;
-- the risk that we are not able to timely satisfy certain obligations
under our credit facility and an event of default occurs;
-- 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 certain 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; and
-- heightened regulatory and litigation risks faced by the financial
services industry, the mortgage insurance industry and PMI;
-- 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 Report on Form 10-Q for the quarter ended September 30, 2009, and our Annual Report on Form 10-K for the year ended December 31, 2008. We undertake no obligation to update forward-looking statements.
THE PMI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Three Months Ended Nine Months Ended
September 30, Septemeber 30,
------------- ------------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited)
(Dollars and shares in thousands, except
per share data)
Net premiums written $167,362 $176,497 $521,932 $591,352
======== ======== ======== ========
Revenues
Premiums earned $176,572 $183,581 $546,266 $602,037
Net gain (loss)
from credit
default swaps 9,248 (9,911) 24,007 439
Net investment
income 25,980 36,325 89,701 106,808
Net realized
investment
gains (losses) 11,921 (49,903) 29,262 (21,977)
Change in fair
value of
certain debt
instruments 3,125 66,283 (17,478) 111,948
Impairment of
unconsolidated
subsidiaries - (2,887) - (90,868)
Other income 13 1,973 2,328 8,419
--- ----- ----- -----
Total revenues 226,859 225,461 674,086 716,806
------- ------- ------- -------
Losses and expenses
Losses and loss
adjustment expenses 336,778 382,689 1,200,566 1,494,807
Amortization of
deferred policy
acquisition costs 4,151 4,955 11,249 13,773
Other underwriting
and operating
expenses 34,569 59,412 114,342 159,977
Interest expense 9,338 11,423 32,921 29,698
----- ------ ------ ------
Total losses
and expenses 384,836 458,479 1,359,078 1,698,255
------- ------- --------- ---------
Loss before equity in
(losses) earnings
from unconsolidated
subsidiaries and
income taxes (157,977) (233,018) (684,992) (981,449)
Equity in (losses)
earnings from
unconsolidated
subsidiaries (4,377) 9,103 (8,215) (45,830)
------ ----- ------ -------
Loss from continuing
operations before
income taxes (162,354) (223,915) (693,207) (1,027,279)
Income tax
benefit from
continuing
operations (74,434) (74,606) (267,399) (321,084)
------- ------- -------- --------
Loss from
continuing
operations (87,920) (149,309) (425,808) (706,195)
Loss from
discontinued
operations, net of
taxes (5,312) (80,104) (5,335) (43,468)
Net loss $(93,232) $(229,413) $(431,143) $(749,663)
======== ========= ========= =========
Diluted loss from
continuing operations
per share $(1.06) $(1.83) $(5.18) $(8.68)
Diluted loss
from discontinued
operations
per share (0.07) (0.98) (0.06) (0.54)
Diluted
net loss
per share $(1.13) $(2.81) $(5.24) $(9.22)
====== ====== ====== ======
THE PMI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31, September 30,
2009 2008 2008
(Unaudited) (Audited) (Unaudited)
(Dollars and shares in thousands, except
per share data)
Assets
Investments $2,814,061 $2,221,595 $2,243,908
Cash and cash equivalents 844,265 1,483,313 713,241
Investments
in unconsolidated
subsidiaries 147,024 150,377 154,397
Reinsurance recoverables 659,356 482,678 393,654
Deferred policy
acquisition costs 42,266 34,791 31,036
Property,
equipment and software,
net of accumulated
depreciation and
amortization 113,751 131,211 138,845
Other assets 315,295 320,434 360,637
Assets - discontinued
operations-
held for sale - - 1,324,795
--- --- ---------
Total assets $4,936,018 $4,824,399 $5,360,513
========== ========== ==========
Liabilities
Reserve for
losses and
loss adjustment
expenses $3,175,027 $2,709,286 $2,463,407
Unearned premiums 87,088 111,656 117,324
Debt 417,757 481,764 532,177
Other liabilities 273,038 243,468 250,897
Liabilities -
discontinued
operations -
held for sale - - 543,830
--- --- -------
Total liabilities 3,952,910 3,546,174 3,907,635
Shareholders' equity 983,108 1,278,225 1,452,878
------- --------- ---------
Total liabilities
and shareholders'
equity $4,936,018 $4,824,399 $5,360,513
========== ========== ==========
Basic shares
issued and
outstanding 82,573 81,688 81,624
====== ====== ======
Book value per share $11.91 $15.65 $17.80
====== ====== ======
Note: Please refer to The PMI Group, Inc. Third Quarter 2009 Financial
Supplement for additional information.
(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. SOURCE PMI Group, Inc.
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