WALNUT CREEK, Calif (LoanSafe.org) – The PMI Group, Inc. (the “Company”) reported a loss from continuing operations in the second quarter of 2010 of $150.6 million, or $1.11 per share.
•Second quarter results included a $31.0 million loss (after tax), or $0.23 per share, as a result of the increase in the fair value of certain corporate debt obligations due to improving credit spreads.
•U.S. Mortgage Insurance’s primary loans in default declined to 138,431 as of June 30, 2010 from 147,248 as of March 31, 2010 due to lower levels of new notices of default, an increase in the number of primary claims paid and continued high levels of cures.
•Consolidated reserves for losses and loss adjustment expenses at June 30, 2010 declined to $3.1 billion compared to $3.3 billion at March 31, 2010 due to higher paid claims and a decline in the delinquent inventory.
•With the completion of the capital raise in April 2010, PMI Mortgage Insurance Co. (“MIC”) ended the second quarter of 2010 with excess minimum policyholders’ position of approximately $415.5 million and a risk to capital ratio of approximately 15.8 to 1.
•The Company had consolidated cash and cash equivalents and investments of $3.4 billion and total assets in captive trust accounts of approximately $900.2 million at June 30, 2010.
U.S. Mortgage Insurance Operations
U.S. Mortgage Insurance Operations had a net loss of $115.6 million in the second quarter of 2010 compared to a net loss of $175.8 million in the second quarter of 2009. The loss in the second quarter of 2010 was due primarily to lower premiums earned and losses and loss adjustment expenses (“LAE”).
Total revenues were $172.0 million in the second quarter of 2010 compared to $230.8 million in the second quarter of 2009. The decrease in the second quarter of 2010 was primarily related to lower new insurance written and a decrease in primary insurance in force from $120.2 billion at June 30, 2009 to $107.6 billion at June 30, 2010.
U.S. Mortgage Insurance Operations’ losses and LAE were $321.1 million in the second quarter of 2010 compared to $476.8 million in the second quarter of 2009. A decline in default inventory, partially offset by higher claims paid, drove the decline in losses and LAE in the second quarter of 2010.
Rescission and claim denial of delinquent risk in force totaled $150.0 million in the second quarter of 2010. Due to lower than expected rescission and claim denial activity in the first half of 2010, the Company reduced its estimate of future rescissions during the second quarter of 2010 which resulted in higher losses and LAE.
U.S. Mortgage Insurance Operations’ loss reserves, gross of reinsurance recoverables, totaled $3.1 billion at June 30, 2010 compared to $3.3 billion at March 31, 2010.
Reserves for losses and LAE, including reinsurance recoverables, for primary insurance decreased by $28.1 million from March 31, 2010 to $2.9 billion at June 30, 2010. The decrease in primary insurance reserves for losses and LAE was primarily due to lower primary loans in default and reductions in loss reserves related to the payment of claims. Reserves for losses and LAE for pool insurance decreased by $147.7 million from March 31, 2010 to $162.7 million at June 30, 2010. The decrease in pool insurance loss reserves was due primarily higher pool claims paid in the second quarter of 2010 and the continued reduction in pool risk in force due to restructurings.
The number of primary loans in default decreased to 138,431 as of June 30, 2010 from 147,248 as of March 31, 2010 but was higher compared to 126,431 as of June 30, 2009. New notices of default received in the second quarter of 2010 totaled 28,597 compared to 34,268 in the first quarter of 2010 and 38,007 in the second quarter of 2009. As a percentage of primary policies in force (which has declined), the default rate was 20.78% at June 30, 2010 compared to 21.53% at March 31, 2010 and 16.96% at June 30, 2009.
The total number of pool loans in default decreased to 17,640 at June 30, 2010 from 25,336 at March 31, 2010 and 52,717 at June 30, 2009. The decline in the second quarter of 2010 compared to the prior quarter and the year ago period was due primarily to the completion of certain modified pool restructurings.
PMI’s Homeownership Preservation Initiatives (HPI) enabled 11,491 borrowers, representing $542.4 million of risk in force, to retain their homes through loan modifications and payment plans in the second quarter of 2010. As of June 30, 2010, approximately 18,079 loans insured by PMI were in a HAMP trial period compared to 27,303 loans as of March 31, 2010. In addition, HPI enabled 2,926 homeowners in the second quarter of 2010 to avoid foreclosure through alternatives such as short sales.
International Operations
International Operations, which include PMI Europe and PMI Canada, had net income from continuing operations for the second quarter of 2010 of $4.6 million compared to a net loss from continuing operations of $13.4 million in the second quarter of 2009. PMI Europe’s risk in force declined to $1.9 billion as of June 30, 2010 compared to $2.1 billion at March 31, 2010 and $6.8 billion at June 30, 2009.
Corporate and Other
The Corporate and Other segment had a net loss of $39.5 million in the second quarter of 2010 compared to a net loss of $33.4 million in the second quarter of 2009. The results for the second quarter of 2010 include a loss (representing an increase in fair market value) of $47.7 million (pre-tax) related to the fair value measurement of certain corporate debt obligations.
Capital and Liquidity Information as of June 30, 2010
•On a consolidated basis, the Company had available funds, consisting of cash and cash equivalents and investments of $3.4 billion and total shareholders’ equity of $954.3 million.
•At the holding company level, The PMI Group, Inc. had available cash and cash equivalents and investments of $94.7 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 $900.2 million.
•During the second quarter of 2010, MIC restructured certain modified pool policies resulting in the acceleration of $56.8 million in payments to the counterparty and the elimination of the remaining $72.7 million of risk in force under the policies. Notwithstanding the elimination of the risk in force, MIC retained the contractual right to a future cash flow steam, with an estimated initial fair value of approximately $15.9 million. The amount of the payments to the counterparty, net of the fair value of the cash flow stream or $40.9 million, was reflected in second quarter 2010 losses and LAE.
•MIC’s policyholders’ position exceeded the minimum policyholders’ position required by capital adequacy requirements by approximately $416.3 million and its risk to capital was approximately 15.7 to 1.
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