PMI Posts $1.01 Billion Loss
Amid Housing, Credit Woes
By DONNA KARDOS
March 17, 2008 7:15 a.m.
PMI Group Inc. swung to a fourth-quarter loss as the company recorded huge losses due to its stake in Financial Guaranty Insurance Co., as well as losses at its U.S. mortgage insurance operations amid turmoil in the housing and credit markets.
The company also slashed its quarterly dividend 76% as the nation's largest mortgage insurer looks to conserve capital.
PMI reported a net loss of $1.01 billion, or $12.51 a share, compared with prior-year net income of $100.5 million, or $1.19 a share.
The latest results include $776.1 million in after-tax losses due to the company's equity in Financial Guaranty Insurance Co., and a loss of $236 million in PMI's U.S. mortgage insurance operations amid an increased reserve for losses.
Revenue edged down 0.2% to $281.5 million.
The mean estimates of analysts polled by Thomson Financial were for a loss of $2.42 a share on $177 million in revenue.
The firm's consolidated net premiums rose 12% to $263.5 million, reflecting increases in new insurance written in the U.S. mortgage-insurance operations and an increase in international operations' net premiums written combined with favorable Australian foreign-exchange rates.
Consolidated losses and loss-adjustment expenses jumped soared fivefold to $574.7 million as a result of higher losses and loss-adjustment expenses in U.S. mortgage-insurance operations as a result of the significant deterioration of the U.S. housing, mortgage and capital markets.
FGIC -- in which PMI has a 42% stake -- resulted in a $776.1 million after-tax loss for PMI as a result of higher losses and loss-adjustment expenses. PMI said last week that it expected to the segment to have "significant" loss driven by FGIC. The release of PMI's results had been postponed several times in the past month due to delays in obtaining results from the bond insurer.
FGIC, the fourth-largest bond insurer, has lost its key AAA rating from all three major ratings firms on worries it might fail to raise $1 billion in capital to cushion possible losses on complex securities that have plunged in value.
While some banks were talking with FGIC to bolster the firm, the company surprised them in February when it made a request to regulators to split its profitable municipal bond business from its subprime credit-default-swap business. It was said that the move could possibly serve as an incentive to get the banks to step up to the plate on a cash infusion for the company. In the past, regulators have said dividing the insurers is a last resort and urged the banks to put in fresh capital. But PMI said last week that while it will work to stabilize its equity investments in FGIC, it will not be contributing any additional capital to it.
PMI said in its U.S. mortgage-insurance operations it added $434.8 million to its reserves for losses and loss adjustment expenses and paid $114.5 million in claims. Its international operations also fell into the red as European operations had $29.6 million loss. Australia and Asia were profitable.
As for the dividend, the reduction to 1.25 cents a share is due to "the current challenges in the U.S. housing and mortgage markets" and "one component of the company's overall capital management strategy."
Looking forward, PMI said it expects its paid claims for 2008 in its U.S. mortgage-insurance operations to be between $825 million to $975 million.
Mortgage insurers such as PMI cover potential lender losses on loans to borrowers who can't come up with a 20% down payment. The companies have seen claims skyrocket over the last year as the lack of liquidity in the housing market makes it difficult for borrowers to refinance or for lenders to resell foreclosed properties at profitable prices, forcing mortgage insurers to pay up. The current problems are also cutting into insurers' available capital.