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The PMI Group, Inc. Reports Third Quarter 2007 Financial Results
WALNUT CREEK, Calif., Oct. 30 /PRNewswire-FirstCall/ -- The PMI Group, Inc. (NYSE: PMI) (the "Company") today reported a net loss for the third quarter of 2007 of $86.8 million, or $1.04 per basic and diluted(1) share. Net income for the third quarter of 2006 was $104.2 million, or $1.16 per diluted share. The net loss for the third quarter of 2007 was primarily due to $348.3 million in paid claims, loss adjustment expenses and additions to the reserve for losses (collectively "Losses and LAE") in the U.S. Mortgage Insurance Operations, and FGIC's negative mark-to-market adjustments on its insured credit derivative portfolio in the Company's Financial Guaranty segment.
Highlights include:
-- U.S. Mortgage Insurance Operations(2) -- The net loss was $65.2 million
in the third quarter of 2007. During the third quarter, the Company
added $253.6 million to the reserves for losses and loss adjustment
expenses (LAE) and paid $92.6 million in claims. Total revenues in the
third quarter increased by approximately 20% compared to the third
quarter of 2006, driven by strong growth in net premiums written and
earned. Insurance in force at the end of the third quarter of 2007 was
$120.0 billion, representing a 20% increase from one year ago.
-- International Operations(3) -- PMI Australia posted net income of $19.7
million on higher premiums earned and net investment income, partially
offset by higher losses and LAE. PMI Australia reported solid growth
year over year in net premiums written and grew its insurance in force
to $182.8 billion. Total losses and LAE increased in the third quarter
of 2007 to $21.8 million due primarily to higher claim rates. PMI
Europe reported a net loss of $8.4 million, primarily as a result of an
unrealized $8.4 million, after tax, negative mark-to-market adjustment
on credit default swaps related to European prime mortgage risks due to
widening credit spreads. PMI Europe's net premiums written increased
approximately 50% compared with the third quarter of 2006 driven
particularly by flow business in Italy. PMI Asia reported net income
of $2.9 million fueled by strong growth in reinsurance premiums written
and earned compared to the third quarter 2006.
-- Financial Guaranty(4) -- equity in losses from FGIC for the third
quarter of 2007 were $28.9 million (pre-tax), as a result of a negative
unrealized mark-to-market adjustment in its insured credit derivative
portfolio due to widening credit spreads partially offset by strong
premium earnings and increased net investment income.
-- Capital Events -- The Company repurchased 5,454,381 common shares for
approximately $178 million in the third quarter of 2007.
Consolidated Operating Results Consolidated net premiums written for the third quarter and year to date totaled $276.7 million and $776.8 million, respectively, compared with $212.4 million and $626.1 million for the same periods one year ago. The year over year increases were primarily due to increases in insurance in force from new insurance written, and higher average insured loan balances in the U.S. Mortgage Insurance Operations and an increase in International Operations' net premiums written combined with favorable Australian foreign exchange rates. Consolidated premiums earned for the third quarter and year to date were $256.8 million and $735.5 million, respectively, compared with $214.9 million and $634.8 million for the same periods one year ago. The increases were due primarily to insurance in force growth, new insurance written, improved persistency and larger loan sizes in the U.S. Mortgage Insurance Operations. Consolidated losses and LAE for the third quarter and year to date were $372.8 million and $628.3 million, respectively, compared with $79.6 million and $212.4 million for the same periods last year. The increases were primarily a result of higher losses and LAE in the U.S. Mortgage Insurance Operations as a result of an increase in notices of default, increased claim rates and larger claim sizes. Consolidated reserve for losses and LAE totaled $770.4 million as of September 30, 2007 compared with $507.0 million as of June 30, 2007 and $394.2 million as of September 30, 2006. Reserves for losses and LAE in the U.S. Mortgage Insurance Operations increased $253.6 million in the third quarter of 2007 primarily due to an increase in notices of default, increased claim rates and larger claim sizes. PMI Australia's reserve for losses and LAE increased $7.3 million in the third quarter of 2007 principally due to higher claim rates and claim sizes. Consolidated other underwriting and operating expenses for the third quarter and year to date were $50.6 million and $173.1 million, respectively, compared with $55.9 million and $169.0 million for the same periods one year ago. The decrease in the third quarter of 2007 was primarily the result of lower employee compensation expenses compared to the corresponding period in 2006. The increase in the first nine months of 2007 compared to the corresponding period in 2006 was primarily due to growth in our International Operations and lower share-based compensation expenses in 2006. The PMI Group, Inc. Third Quarter Results by Segment Third Quarter Third Quarter Net Total Revenues (Loss) Income (Dollars in millions, except per share data) 2007 2006 % Change 2007 2006 % Change U.S. Mortgage Insurance Operations $241.5 $201.8 19.7% $(65.2) $70.8 (192.1)% International Operations 65.2 68.6 (5.0)% 13.9 29.4 (52.7)% Financial Guaranty(6) (24.3) 26.5 (191.7)% (24.4) 23.7 (203.0)% Corporate and Other(5) 4.6 4.0 n.m. (11.0) (19.8) n.m. Consolidated Total $287.0 $300.9 (4.6)% $(86.8) $104.2 (183.3)% Diluted Net (Loss) Income Per Share(1) $(1.04) $1.16 (189.7)% Book Value Per Share $43.96 $39.14 12.3% May not total due to rounding. n.m. - Not meaningful. The PMI Group, Inc. Year to Date Results by Segment Nine Months Ended Nine Months Ended September 30 September 30 Total Revenues Net (Loss) Income (Dollars in millions, except per share data) 2007 2006 % Change 2007 2006 % Change U.S. Mortgage Insurance Operations $697.7 $600.7 16.1% $45.2 $213.1 (78.8)% International Operations 197.0 187.1 5.3% 65.1 83.5 (22.0)% Financial Guaranty 43.6 76.3 (42.9)% 34.5 68.8 (49.9)% Corporate and Other(5) 15.1 24.2 n.m. (45.7) (46.3) n.m. Consolidated Total $953.3 $888.2 7.3% $99.1 $319.2 (69.0)% Diluted Net Income Per Share $1.14 $3.38 (66.3)% May not total due to rounding. n.m. - Not meaningful. Segment Highlights U.S. Mortgage Insurance Operations -- The net loss totaled $65.2 million for the third quarter of 2007 compared with net income of $70.8 million in the third quarter of 2006. The net loss in the third quarter was due primarily to higher losses and LAE partially offset by higher premiums earned and net investment income. -- Net premiums written in the third quarter of 2007 increased by 33.6% to $214.4 million from $160.5 million in the third quarter of 2006. The increase was due primarily to increases in insurance in force driven by new insurance written. -- The primary persistency rate increased to 73.3% in the third quarter of 2007 compared with 67.3% in the third quarter of 2006. -- Total losses and LAE in the third quarter of 2007 were $348.3 million compared with $67.7 million in the third quarter of 2006 driven by an increase in notices of default, increased claim rates and larger claim sizes. -- Total claims paid increased to $92.6 million for the third quarter of 2007 compared with $62.0 million in the third quarter of 2006 driven by an increase in the claim rates and larger average claim sizes. -- After tax equity in earnings from CMG MI for the third quarter of 2007 was $2.7 million, compared with $3.3 million for the same period of 2006. The decline in equity in earnings was primarily driven by higher incurred losses partially offset by higher premiums earned. CMG MI's insurance in force grew to $18.3 billion, persistency increased to 80.7% and the primary default rate was 1.23%. International Operations -- PMI Australia reported net income of $19.7 million for the third quarter of 2007 compared with net income of $24.7 million for the third quarter of 2006. The decrease in net income was due primarily to higher losses and LAE and other underwriting and operating expenses partially offset by increased premiums earned and net investment income. The third quarter of 2007 addition to reserves for losses and LAE was $7.3 million while claims paid for the quarter totaled $16.8 million. -- PMI Europe reported a net loss of $8.4 million in the third quarter of 2007 compared with net income of $2.0 million for the same period a year ago. The decrease was due primarily to an unrealized $8.4 million (after tax) negative mark-to-market adjustment on credit default swaps related to European, prime mortgage risks due to widening credit spreads and to a lesser extent higher expenses and loss adjustment expenses. -- PMI Asia's net income in the third quarter of 2007 totaled $2.9 million compared with $2.7 million for the same period a year ago. Financial Guaranty -- After tax equity in losses from FGIC for the third quarter of 2007 totaled $27.0 million compared with after tax equity in earnings of $21.9 million for the same period a year ago. The loss in the third quarter of 2007 was primarily due to a negative unrealized mark-to- market adjustment in its insured credit derivative portfolio due to widening credit spreads partially offset by strong premium earnings and increased net investment income. -- After tax equity in earnings from RAM Re for the third quarter of 2007 was $1.4 million compared with $1.9 million for the same period one year ago. -- PMI Guaranty, which began operations in the fourth quarter of 2006, reported net income of $1.2 million in the third quarter of 2007. Corporate and Other -- The Corporate and Other segment reported a net loss of $11.0 million for the third quarter of 2007 compared with a net loss of $19.8 million for the same period a year ago. The decrease in the net loss for the third quarter of 2007 compared with the third quarter of 2006 was due to lower other underwriting and operating expenses and interest expense. Supplemental Financial Information -- The PMI Group, Inc.'s Third Quarter 2007 Financial Supplement can be found at www.pmigroup.com under Investor Relations. About The PMI Group, Inc. The PMI Group, Inc. (NYSE: PMI) , headquartered in Walnut Creek, CA, is an international provider of credit enhancement products that promote homeownership and facilitate mortgage transactions in the capital markets. Through its wholly owned subsidiaries and unconsolidated strategic investments, the company offers residential mortgage insurance and credit enhancement products domestically and internationally, financial guaranty insurance, and financial guaranty reinsurance. Through its subsidiaries, The PMI Group, Inc. is one of the world's largest providers of private mortgage insurance with operations in the United States, Australia and New Zealand, Canada and the European Union, as well as one of the largest providers of mortgage guaranty reinsurance in Hong Kong. For more information: www.pmigroup.com. Cautionary Statement: Statements in this earnings release that are not historical facts, and that relate to future plans, events or performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that forward-looking statements by their nature involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many factors could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. Risks and uncertainties that could affect the Company are discussed in our Form 10-K for the year ended December 31, 2006 and Form 10-Q for the quarter ended June 30, 2007 and include changes in economic conditions such as interest rates, home values, employment rates and refinance activity. We undertake no obligation to update forward-looking statements.
(1) Due to the net loss in this quarter, normally dilutive components of
shares outstanding such as stock options were not included in fully
diluted shares outstanding as their inclusion would have been anti-
dilutive.
(2) "U.S. Mortgage Insurance Operations" includes the results of PMI
Mortgage Insurance Co. (PMI), affiliated U.S. reinsurance companies
and equity in earnings from CMG Mortgage Insurance Company (CMG MI).
(3) "International Operations" includes the results of PMI Australia, PMI
Europe, PMI Asia and PMI Canada.
(4) "Financial Guaranty" includes PMI Guaranty Co. (PMI Guaranty) and our
equity investments in Financial Guaranty Insurance Company, Inc.
(FGIC) and Ram Reinsurance Company Ltd. (RAM Re).
(5) The "Corporate and Other" segment primarily consists of the holding
company, contract underwriting operations and intercompany
eliminations.
(6) Revenues for the Financial Guaranty segment were negative due to the
equity in loss from FGIC in the third quarter of 2007 of $28.9
million.
THE PMI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
(Unaudited) (Unaudited)
(Dollars and shares, except per
share data, in thousands)
Net premiums written $276,723 $212,426 $776,751 $626,145
Revenues
Premiums earned $256,834 $214,903 $735,532 $634,787
Net (loss) income
from credit default
swaps (8,371) 978 (4,964) 4,744
Net investment income 55,408 49,680 159,166 145,561
Equity in (losses)
earnings from
unconsolidated
subsidiaries (22,602) 31,491 49,655 91,404
Net realized
investment gains 394 726 2,386 1,621
Other income 5,307 3,142 11,561 10,099
Total revenues 286,970 300,920 953,336 888,216
Losses and expenses
Losses and loss
adjustment expenses 372,844 79,603 628,324 212,403
Amortization of
deferred policy
acquisition costs 18,022 16,935 51,477 52,063
Other underwriting
and operating
expenses 50,585 55,949 173,059 168,994
Interest expense 8,358 9,486 25,015 25,732
Total losses and
expenses 449,809 161,973 877,875 459,192
(Loss) income before
income taxes (162,839) 138,947 75,461 429,024
Income tax (benefit)
expense (76,066) 34,709 (23,632) 109,823
Net (loss) income $(86,773) $104,238 $99,093 $319,201
Diluted net (loss)
income per share $(1.04) $1.16 $1.14 $3.38
THE PMI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31, September 30,
2007 2006 2006
(Unaudited) (Audited) (Unaudited)
(Dollars and shares, except
per share data, in thousands)
Assets
Investments $3,833,440 $3,292,933 $3,356,255
Cash and cash equivalents 233,256 457,207 693,250
Investments in unconsolidated
subsidiaries 1,126,781 1,100,387 1,062,897
Property, equipment and
software, net of accumulated
depreciation and
amortization 166,295 174,128 177,538
Other assets 385,587 302,535 294,644
Total assets $5,745,359 $5,327,190 $5,584,584
Liabilities
Reserve for losses and loss
adjustment expenses $770,386 $414,736 $394,210
Unearned premiums 612,889 520,264 489,838
Debt 496,593 496,593 1,264,435
Other liabilities 299,781 327,007 327,949
Total liabilities 2,179,649 1,758,600 2,476,432
Shareholders' equity 3,565,710 3,568,590 3,108,152
Total liabilities and
shareholders' equity $5,745,359 $5,327,190 $5,584,584
Basic shares issued and
outstanding 81,120 86,747 79,421
Book value per share $43.96 $41.14 $39.14
Note: Please refer to The PMI Group, Inc. Third Quarter 2007 Financial
Supplement for additional information.
Website: http://www.pmigroup.com// |
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