PMI Group Incorporation (PMI) reported second-quarter net loss from continuing operations of $1.11 per share, much wider than the Zacks Consensus Estimate of a loss of 65 cents per share. However, the reported quarter loss was narrower than the loss of $2.71 per share in second-quarter 2009.
Losses from continuing operations reached $150.6 million compared with a loss of $222.6 million in the prior-year quarter. The lower year-over-year loss was due to lower losses and loss adjustment expenses from mortgage insurance operations.
Second-quarter 2010 results included a loss of $31.0 million, or 23 cents per share, due to the increase in the fair value of certain corporate debt obligations based on improving credit spreads.
Net premiums written in the quarter were $144.3 million, down 15% from $169.7 million in the prior-year quarter. The decrease was primarily due to lower levels of new insurance written.
Premiums earned were $149.7 million in the quarter under review, down 17.6% from $181.6 million in the prior-year quarter.
Net investment income declined 8% year over year to $23.9 million from $29.1 million in the prior-year period.
Reserves for losses and loss adjustment expenses were $3.1 billion as of June 30, 2010, compared with $3.3 billion as of March 31, 2010, due to higher paid claims and a decline in delinquent inventory.
Total losses and expenses declined 31.9% year over year to $364.8 million in the quarter.
Segment Update
U.S. Mortgage Insurance Operations: Total revenues decreased to $172.0 million from $230.8 million in the prior-year period. Lower new insurance written and a decrease in primary insurance in force led to the decline.
Losses and loss adjustment expenses were $321.1 million in the quarter compared with $476.8 million in the prior-year quarter due to a decline in default inventory. However, higher claims paid were a partial offset.
Segment net loss improved slightly to $115.6 million from a net loss of $175.8 million in second-quarter 2009. The lower loss was due to lower incurred losses and other underwriting and operating expenses offset by lower premiums earned.
International Operations: Net income from continuing operations in the quarter was $4.6 million compared with a net loss from continuing operations of $13.4 million in the prior-year period.
Corporate and Other: Net loss in the quarter was $39.5 million compared with a net loss of $33.4 million a year ago. The loss in the reported quarter aggravated due to fair value measurement of certain corporate debt obligations.
Financial Update
Cash and cash equivalents at the end of second-quarter 2010 were $1 billion, higher than $0.7 billion at fourth-quarter 2009 end.
Debt increased to $588 million from $390 million at fourth-quarter 2009 end.
Book value per share was $5.94, down 32.5% from $8.80 per share.
A decline in pool loans in default, reduced default loans, new insurance written and improving credit spread will help the company to fare better going forward. However, a lackluster economy keeps us on the sidelines. We remain “Neutral” on PMI Group. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.
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