PMI Group US mortgage losses mount

BANGALORE: PMI Group's US mortgage losses mounted and the company said its unit MIC might be stopped from writing insurance in more states, wiping out more than half of the mortgage insurer's market value.

Mortgage insurers like PMI, MGIC Investment, Radian and Genworth have been struggling to meet certain capital requirements to continue insuring mortgages, but PMI's risk has breached the maximum amount allowed and its MIC unit is already banned from writing new business in 6 states.

Shares of MGIC fell 11 percent, Radian fell 10 percent, while those of Genworth lost 5 percent of their value in morning trade on Thursday.

"In light of its second-quarter results, we expect that the number of states in which MIC is precluded from writing new business will significantly increase," PMI said in a regulatory filing.

Since last month, PMI has been writing new business through MIC's unit PMI Mortgage Assurance Co (PMAC) in two states where it was unable to get waivers after it breached regulatory capital requirements.

The regulatory requirement in most states is a risk-to-capital ratio of 25:1.

Genworth's US MI segment as of June 30 was an estimated 25:1. But, MIC's risk-to-capital ratio comes in shockingly at 58.1:1.

"(The ratio) 58:1 is glaringly high, Its far higher than any of its peers.

Triad Guaranty Insurance Corporation had a risk to capital ratio of 42.7-1 before they were ultimately shut down," Susquehanna analyst Jack Micenko said.

PMI also said it is exploring alternatives to get capital relief for MIC or the other units so that they may replace MIC as its primary writer of new insurance.

The company said it might restructure MIC's primary insurance portfolio, go for debt or equity offerings or get more reinsurance to boost capital levels.

PMI Group's US mortgage insurance (MI) unit, which earned lower premiums and made less money on its investments in the second quarter, saw its net loss almost tripling to $338.4 million.

But the US MI unit, which contributes more than half of the company's revenue, saw lower loan defaults and a drastic fall in claims.

For the second-quarter, PMI reported a net loss of $134.8 million, or 83 cents per share.

Loss from continuing operations, which excludes gains it made from the sale of its Australian operations in 2008, was $285.3 million, or $1.76 per share.

The company gained $75.6 million, 47 cents a share, from favourable changes in the market value of certain debt instruments during the second quarter.

PMI shares were trading at $0.43 Thursday on the New York Stock Exchange.

With Thursday's fall, the value of PMI stock has plummeted 92 percent since touching a 52-week high of $4.68 in October last year.

Copyright Reuters, 2011