PMI Group Widens Loss - Analyst Blog

PMI Group Inc. (PMI) reported third-quarter net loss from continuing operations of $1.74 per share, much wider than the Zacks Consensus Estimate of a loss of 59 cents per share. Results also widened from a loss of $1.06 per share in third-quarter 2009. Loss from continuing operations was $281.1 million compared with a loss of $87.9 million in the prior-year quarter.

Net premiums written in the quarter were $139.6 million, down 16% from $167.4 million in the prior-year quarter. The decrease was primarily due to lower levels of new insurance written.

Premiums earned were $139.8 million in the quarter under review, down 21% from $176.6 million in the prior-year quarter.

Net investment income declined 48% year over year to $13.6 million from $26.0 million in the prior-year period.

Reserves for losses and loss adjustment expenses were $3.0 billion as of September 30, 2010, down from $3.1 billion as of June 30, 2010, due to higher paid claims and lower default inventory, partially offset by an increase in reserves. 

Total losses and expenses declined 5% year over year to $364.2 million in the quarter.

During the third quarter of 2010, PMI Group recorded net investment gains of $83.2 millionor 34cents per share. The gain was realized from municipal bonds sold in relation to a strategic repositioning of the investment portfolio.

Segment Update

U.S. Mortgage Insurance Operations: Total revenues increased to $235.9 millionfrom $207.6 millionin the prior-year period. Net realized investment gains more than offset lower premiums earned, resulting in the overall increase.

Losses and loss adjustment expenses were $317.1 million in the quarter compared with $334.6 million in the prior-year quarter.

Segment net loss widened to $251.6 million from a net loss of $110.6 million in third-quarter 2009. The loss aggravated due to an increase in the valuation allowance relating to deferred tax assets and continued high loss and loss adjustment expenses. However, investment gains were a partial offset.

International Operations: Net income from continuing operations in the quarter was $2.6 million compared with $27.4 million in the prior-year period.

Corporate and Other: Net loss in the quarter was $32.2 million compared with a net loss of $4.7 million a year ago. The loss in the reported quarter plunged due to fair value measurement of certain corporate debt obligations as well as in the valuation allowance associated with deferred taxes.

Financial Update

Cash and cash equivalents at the end of third-quarter 2010 were $1.1 billion, higher than $0.8 billion at third-quarter 2009 end.

Debt increased to $588 million from $418 million at third-quarter 2009 end.

Book value per share was $4.11 as of September 30, 2010, down 65.5% from $11.91 as of September 30, 2009.

We expect declining pool loans in default, reduced default loans, new insurance written and improving credit spread to help the company post improved results, going forward.

We remain Neutral on PMI Group over the long term. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.