PMI Group Announces Issuance of Supervisory Order by the Arizona Department of Insurance

The PMI Group PMI today announced that the Arizona Department of Insurance has issued an order, placing PMI Mortgage Insurance and PMI Insurance under the Department's supervision, and appointing a Supervisor. Pursuant to the order, MIC and PIC are required to cease issuing new mortgage insurance commitments effective as of the close of business today, unless otherwise approved by the Director of the Department or the Supervisor. Under the order, unless otherwise approved by the Director of the Department or the Supervisor, MIC and PIC may issue mortgage insurance policies under pending commitments through the close of business on September 16, 2011. In addition, pursuant to the order, MIC is required to cease making interest payments on the $285 million in aggregate principal amount of surplus notes that it has issued in favor of the Company. During the period of supervision, the order prohibits MIC and PIC from taking a variety of actions without the approval of the Director of the Department or the Supervisor, including lending funds, merging with another company, entering into reinsurance contracts, paying dividends and entering into affiliate transactions, and, except in the ordinary course of business, conveying or encumbering assets, withdrawing from any of its bank accounts, investing funds and incurring liabilities. The order provides that, in order to end the supervision, MIC and PIC must provide the Department with a plan satisfactory to it that cures deficiencies in MIC's and PIC's financial condition, including deficiencies in MIC's and PIC's policyholder position. The order provides that, if MIC and PIC do not satisfy these requirements within 60 days, the Director of the Department may take appropriate action, including commencing conservatorship proceedings. Fannie Mae and Freddie Mac previously approved the use of PMI Mortgage Assurance Company, a subsidiary of MIC, as a limited, direct issuer of mortgage guaranty insurance in certain states in which MIC is unable to continue to write new business. As a result of the order, pursuant to restrictions contained in Fannie Mae's approval, PMAC is no longer eligible to offer mortgage insurance. Accordingly, PMAC will no longer issue mortgage insurance policies in any states. Although the Company is exploring opportunities to further capitalize PMAC and to obtain the restoration of the GSE's approvals of PMAC as an eligible mortgage insurer, there can be no assurance that these efforts will be successful. The Department may at any time take further regulatory actions, including initiating state court receivership proceedings for the rehabilitation or liquidation of MIC. In a court-ordered receivership, the Director would be appointed receiver of MIC and would have full and exclusive power of management and control of MIC. The Company cannot predict if or when the Department might take any such actions. A court order appointing a receiver could result in up to approximately $735 million of The PMI Group's outstanding indebtedness becoming due and payable. The PMI Group does not have access to sufficient funds or other sources of liquidity sufficient to enable it to repay such obligations if they were to become due and payable. MIC and PIC will work with their customers, the Department and the GSEs to facilitate run-off. In addition, the Company and its subsidiaries are exploring potential capitalization and restructuring alternatives, including potential options to address the Department's findings, and have engaged Willis Capital Markets & Advisory and Evercore Partners as financial advisors. There can be no assurance that any of these potential alternatives will be successful.