PMI Mortgage Insurance Co., a division of PMI Group Inc. (PMI), said on Thursday that it has sold its entire investment in RAM Holdings Ltd. (RAMR), the holding company for RAM Reinsurance Ltd.
PMI had impaired its investment in RAM Holdings in 2008 and reduced the carrying value of the investment to zero. The proceeds from the sale would primarily add to PMI’s liquidity.
The move is in line with PMI’s focus on its core U.S. mortgage insurance operations. PMI Group had implemented a five-point plan to address the challenging U.S. economy and the negative global market sentiment. The plan focuses on core mortgage insurance business, booking high-quality new business, mitigating losses and managing expenses.
PMI Group also intends to build its capital position to maintain its growth. In its 2008 Form 10-K, management stated that the Board of Directors has suspended its common share dividend for the foreseeable future, which will reduce cash expenditures and enhance liquidity in the current challenging environment. The company is also working with its banks to restructure its credit facility to meet its current holding company needs and through the facility’s maturity in October 2011.
While increasing persistence will drive domestic growth, it will put pressure on capital. Additionally, the rise in delinquencies and defaults on loan payments may continue for longer than expected, leading to increased losses for the mortgage insurers. Though the company may benefit from the recent U.S. regulatory moves to reduce foreclosures, we expect continued losses in the coming quarters till the housing situation bottoms out.
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