PMI Group, Inc.’s (PMI) fourth quarter loss from continuing operations came in at $2.76 per share, much higher than the Zacks Consensus Estimate of a loss of $1.61. This was also worse than the loss from continuing operations of $2.22 in the prior-year quarter.
 
Loss was primarily driven by continued high losses and loss adjustment expenses (LAE) in the U.S. Mortgage Insurance Operations. Higher claim rates within the primary portfolio also contributed to the fourth quarter loss. Consolidated premiums earned and investment income further decreased during the quarter. However, PMI Group completed various capital relief initiatives in the reported quarter which positively impacted PMI Mortgage Insurance Co.’s statutory capital by approximately $51.0 million.
 
For full year 2009, PMI Group’s loss from continuing operations was $654.0 million or $7.94 per share, compared to a loss of $887.2 million or $10.90 in the previous year. 

Consolidated net premiums written for the reported quarter were $156.1 million, down 12.1% from $177.5 million in the prior-year quarter. The decreases were primarily due to lower levels of new insurance written and higher refunded premiums from insurance previously written. Premiums earned for the reported quarter were $170.6 million, down 7.4% from $184.1 million in the prior-year quarter. 

Total losses and LAE from U.S. Mortgage Insurance Operations increased to $585.7 million from $454.4 million in the prior-year quarter, due primarily to the aforementioned acceleration of expected modified pool losses and higher primary claim rates. 

During the reported quarter, consolidated other underwriting and operating expenses decreased 30.3% to $40.9 million from $58.6 million in the prior-year quarter. The decrease was due primarily to a decrease in payroll and related expenses. 

Segment Results 

The U.S. Mortgage Insurance segment reported a net loss of $242.0 million in the reported quarter, compared to a net loss of $174.1 million in the prior-year quarter. Total revenues for this segment increased 11.5% year-over-year to $205.2 million. The increase in revenues was primarily related to $9.0 million in net realized investment gains compared to $25.5 million of net realized investment losses in the year-ago quarter. 

The International Operations segment reported a net loss of $2.9 million, compared to a net loss of $30.2 million in the prior-year quarter. Results for the reported quarter were aided by net gains from changes in the fair value of mortgage insurance contracts in PMI Europe. 

Corporate & Other segment reported a net income from continuing operations of $16.9 million, compared to a net income of $23.3 million in the prior-year quarter. Effective Dec 31, 2009, PMI Group combined its Financial Guaranty segment with the Corporate and Other segments.
 
As of Dec 31, 2009, PMI Group’s book value declined to $8.80 per share, compared to $15.65 as of Dec 31, 2008. 

As of Dec 31, 2009, the PMI Group had available funds, consisting of cash and cash equivalents and investments, of $3.3 billion and total shareholders’ equity of $727.1 million. 

The rise in delinquencies and defaults on loan payments may continue for longer, than expected earlier, leading to increased losses for mortgage insurers. Furthermore, we suspect PMI Group may need to raise new capital in the coming quarters, which would result in dilution for the existing shareholders. Though we expect continuing losses in the coming quarters, fundamentals are expected to improve gradually with the execution of new initiatives taken by PMI Group.
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