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PMI Posts $228M Q4 Loss, Skirts Capital Requirements in Some States

""The PMI Group Inc."":http://www.pmi-us.com said Tuesday that it lost $228.2 million, or $2.76 per share, in the fourth quarter of last year, even though it posted gains in revenue.

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The company's revenue rose by more than 30 percent, boosted by earnings from PMI's investments and credit-default-swaps. However, its loss and loss-adjustment expenses eclipsed these gains as they increased 38 percent and loss reserves were raised 20 percent.

PMI's fourth quarter loss from continuing operations widened compared to a deficit of $181 million, or $2.22 per share, for the same period a year earlier. For the full year 2009, the company found itself in the hole $654 million, or $7.94 per share, but that's an improvement over 2008, when it lost $887.2 million, or $10.90 per share.

The California-based firm's U.S. mortgage insurance operations recorded a net loss of $242 million in the fourth quarter of 2009, compared to a net loss of $174.1 million in the fourth quarter of 2008. According to ""PMI's earnings statement"":http://phx.corporate-ir.net/phoenix.zhtml?c=63356&p=irol-newsArticle&ID=1391076&highlight, the shortfall was driven by ""the acceleration of expected future losses related to modified pool contracts.""

The company also cited higher claim rates and higher default inventories as contributing factors. The number of primary loans in default at December 31, 2009 was 150,925, PMI reported. That compares to 141,261 defaults at the end of the previous quarter, and 109,580 loans in default at December 31, 2008. As a percentage of primary policies in force, the default rate was 21.40 percent as of the end of last year, PMI said.

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As its default rate has grown, PMI has taken steps to counter foreclosure for some borrowers. These initiatives, including the company's participation in the administration's Home Affordable Modification Program (HAMP), enabled 23,352 borrowers to retain their homes, representing approximately $1.0 billion of risk in force, to retain their homes through loan mods and payment plans in 2009. In addition, the company said it enabled 7,595 homeowners last year to avoid foreclosure through alternatives such as short sales.

Just prior to its earnings release, PMI also announced that ""it received approval"":http://phx.corporate-ir.net/phoenix.zhtml?c=63356&p=irol-newsArticle&ID=1391012&highlight from the Arizona Department of Insurance for its principal operating subsidiary, PMI Mortgage Insurance Co. (MIC), to continue insuring new mortgages in the state even if PMI falls below Arizona capital requirements.

L. Stephen Smith, chairman and CEO of PMI, said, ""The Department's action reflects the importance for MIC to continue to write new mortgage insurance in support of the U.S. housing recovery, and affirms our view that MIC has the financial resources to pay its policyholder obligations during a very challenging economic environment.""

At the same time, the company announced that ""Fannie Mae has approved"":http://phx.corporate-ir.net/phoenix.zhtml?c=63356&p=irol-newsArticle&ID=1391016&highlight PMI Mortgage Assurance Co. (PMAC), a subsidiary of MIC, as a direct issuer of mortgage guaranty insurance. This sanction means that PMAC can write new mortgage insurance in 16 designated states in the event MIC is required to cease doing business under the states' regulatory capital requirements due to its financial condition.

The company expects PMAC to hold approximately $28 million in capital, following certain internal restructuring and a $10 million investment from MIC. If necessary, PMAC will insure new loans under the same policy terms and conditions as MIC, and will contract with MIC to provide sales, operational, and other support services, PMI said. PMAC is also in negotiations with Freddie Mac to become an eligible insurer under its guidelines.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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