Real Estate Central

WALNUT CREEK, Calif., May 12 /PRNewswire-FirstCall/ — The PMI Group,
Inc. (NYSE: PMI) (the “Company”) today reported a net loss for the first
quarter of 2008 of

74.0 million, or $3.37 per basic and diluted(1) share,
compared to net income in the first quarter of 2007 of $102.0 million, or
$1.16 per diluted share. The net loss for the first quarter of 2008 was
primarily due to a net loss of $172.5 million in the U.S. Mortgage
Insurance Operations due to increases in paid claims, loss adjustment
expenses and additions to the reserve for losses (collectively “Losses and
LAE”) and an other-than-temporary impairment of the Company’s investment in
FGIC. These losses were partially offset by higher net income from
International Operations.



First Quarter 2008 Update:
— In the U.S. Mortgage Insurance Operations, net premiums earned
increased by 7.2% to

07.8 million from $193.8 million in the first
quarter of 2007. Primary insurance in force increased by 16.3% to
$124.3 billion from $106.9 billion in the first quarter of 2007.
— PMI Australia reported record net income of $30.5 million, an increase
of 69% from the first quarter 2007. Insurance in force for PMI
Australia increased by 16.6% to $182.7 billion from $156.7 billion.
— In the Financial Guaranty segment, the Company determined that its
investment in FGIC was other-than-temporarily impaired and reduced the
carrying value of its investment from $103.6 million at December 31,
2007 to zero. The impairment resulted in an $88.0 million loss in the
current quarter and a $15.6 million loss in other comprehensive income.
To the extent that the Company’s carrying value remains zero, the
Company will not recognize in future periods its proportionate share of
FGIC losses, if any, and the Company is under no obligation to provide
additional capital to FGIC.
— The Company completed the collateral pledge agreement for its revolving
credit facility and drew

00 million under the facility.
— The Company and its financial advisors continue to evaluate the
execution of various capital raising initiatives that include
reinsurance, the possible complete or partial sale of assets and/or
capital markets transactions.

Consolidated Operating Results

Consolidated net premiums written for the first quarter of 2008 totaled

55.3 million compared with

44.1 million for the same period one year
ago. The year over year increase was due primarily to higher persistency
and increases in average premium rates and insured loan sizes in U.S.
Mortgage Insurance Operations, and favorable foreign exchange rates for
International Operations’ net premiums written.

Consolidated premiums earned for the first quarter of 2008 were

62.0
million compared with

36.4 million for the same period one year ago. The
increase was due primarily to improved persistency and larger loan sizes in
U.S. Mortgage Insurance Operations and larger loan sizes in our
International Operations.

Consolidated losses and LAE for the first quarter of 2008 were $579.8
million compared with $109.3 million for the same period one year ago. The
increase was primarily a result of higher Losses and LAE in our U.S.
Mortgage Insurance Operations as a result of the significant deterioration
in the U.S. housing, mortgage and capital markets.

Consolidated reserve for losses and LAE totaled $1.7 billion as of
March 31, 2008 compared with $1.2 billion as of December 31, 2007 and
$443.0 million as of March 31, 2007. Reserves for losses and LAE in the
U.S. Mortgage Insurance Operations increased $456.2 million in the first
quarter of 2008 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 $9.0 million in the first quarter of 2008
principally due to an increase in notices of default, higher claim rates
and higher average claim sizes.

Consolidated other underwriting and operating expenses for the first
quarter of 2008 were $58.9 million compared with $62.7 million for the same
period one year ago. The decrease was primarily a result of lower employee
compensation expenses.





The PMI Group, Inc. First Quarter Results by Segment

First Quarter First Quarter
Total Revenues Net (Loss) Income
(Dollars in millions,
except per share data) 2008 2007 2008 2007
U.S. Mortgage Insurance
Operations(2)

77.3

24.3 $(172.5) $68.9
International Operations(3) 90.8 63.8 17.8 23.1
Financial Guaranty(4) (85.3) 2.5 (124.2) 29.9
Corporate and Other(5) 33.2 3.8 5.0 (19.8)
Consolidated Total $315.9

94.5 $(274.0) $102.0
Diluted Net (Loss) Income
Per Share(1) $(3.37) $1.16
Book Value Per Share

7.58 $42.21


May not total due to rounding.


Segment Highlights
U.S. Mortgage Insurance Operations
— The net loss totaled $172.5 million for the first quarter of 2008
compared with net income of $68.9 million in the first quarter of 2007.
The net loss in the first quarter was due primarily to higher Losses
and LAE partially offset by higher premiums earned, increased realized
investment gains and lower other underwriting and operating expenses.
— Net premiums earned in the first quarter of 2008 increased by 7.2% to

07.8 million from $193.8 million in the first quarter of 2007. The
increase was due primarily to a 16.3% increase in insurance in force to
$124.3 billion from $106.9 billion in the first quarter of 2007 and a
higher primary persistency rate. In the first quarter of 2008, the
primary persistency rate increased to 77.6% compared with 70.7% in the
first quarter of 2007.
— Losses and LAE in the first quarter of 2008 were $537.0 million
compared with $92.8 million in the first quarter of 2007 driven by an
increase in notices of default, increased claim rates and larger claim
sizes.
— Total claims paid increased to $162.6 million for the first quarter of
2008 compared with $69.3 million in the first quarter of 2007 driven by
an increase in claim rates and larger average claim sizes.
— After tax equity in earnings from CMG MI for the first quarter of 2008
were $1.9 million, compared with $3.2 million for the same period of
2007. The decline in equity in earnings was primarily driven by higher
Losses and LAE partially offset by higher premiums earned. CMG MI’s
insurance in force grew to $19.5 billion, persistency increased to
81.6% and the primary default rate was 1.42%.


International Operations
— PMI Australia reported record net income of $30.5 million for the first
quarter of 2008 compared with net income of $18.0 million for the first
quarter of 2007. The increase in net income was due primarily to
higher premiums earned, net investment income and net realized
investment gains, as well as the strengthening Australian dollar. The
increase in net income was partially offset by higher Losses and LAE.
The first quarter of 2008 addition to reserves for losses and LAE was
$9.0 million bringing the total reserves for losses and LAE to $74.1
million. Claims paid for the first quarter totaled $14.4 million.
— PMI Europe reported a net loss of $13.9 million in the first quarter of
2008 compared with net income of $3.0 million for the same period a
year ago. The decrease was driven by an increase in loss reserves due
primarily to the deteriorating performance of certain U.S. exposures on
which PMI Europe provided reinsurance coverage in 2005. To a lesser
extent, the decrease was driven by an unrealized

.6 million (pre-tax)
negative mark-to-market adjustment on credit default swaps related to
European prime mortgage risks due to widening credit spreads.
— PMI Asia’s net income in the first quarter of 2008 totaled

.7 million
compared with

.2 million for the same period a year ago.


Financial Guaranty
— The Company determined that its investment in FGIC was other-than-
temporarily impaired and reduced the carrying value of its investment
from $103.6 million at December 31, 2007 to zero. Due to the
impairment of its FGIC investment in the first quarter of 2008, the
Company did not recognize any equity in earnings or losses in the
quarter. In the first quarter of 2007, the Company recorded after tax
equity in earnings of

7.1 million.
— After tax equity in losses from RAM Re for the first quarter of 2008
were $36.2 million compared with after tax equity in earnings of $1.5
million for the same period one year ago. The decrease was due
primarily to net unrealized mark-to-market losses on its derivative
portfolio as a result of widening spreads and an increase in loss
reserves related to continuing deterioration in the performance of
residential mortgage backed securities. After equity in losses in the
quarter, the Company determined that the carrying value of its
investment in RAM Re was below the market value and therefore no
impairment was necessary. As of March 31, 2008, the carrying value of
the Company’s investment in RAM Re was

6.0 million.
— PMI Guaranty reported a net loss of $1.3 million in the first quarter
of 2008 compared with net income of $1.2 million for the same period
one year ago.


Corporate and Other
— The Corporate and Other segment reported net income of $5.0 million for
the first quarter of 2008 compared with a net loss of $19.8 million for
the same period a year ago. The increase in net income for the first
quarter of 2008 compared with the net loss in the first quarter of 2007
was due primarily to the reporting of certain debt instruments at fair
value under SFAS No. 157 and 159(6) and, to a lesser extent, lower
other underwriting and operating expenses related to contract
underwriting services and lower share-based compensation.

Supplemental Financial Information

The PMI Group, Inc.’s First Quarter 2008 Financial Supplement can be
found at http://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: http://www.pmigroup.com.

Cautionary Statement: Statements in this press release that are not
historical facts, or 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 forward-looking statements. Such factors
include, among others, national or regional recessions, and further
deterioration in the housing, mortgage and related credit markets. In
particular, declines in housing values and/or housing demand, deterioration
of borrower credit, higher unemployment rates, changes in interest rates,
higher levels of consumer credit, higher mortgage default and claim rates,
lower cure rates, higher claim sizes, the aging of our mortgage insurance
portfolios, adverse changes in liquidity in the capital markets, the
inability of loans servicers to process higher volumes of delinquent loans,
and the further contraction of credit markets could negatively affect our
losses. Other risks and uncertainties are discussed in our SEC filings,
including our Annual Report on Form 10-K for the year ended December 31,
2007 (in Item 1A) and our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2008. We undertake no obligation to update forward-looking
statements.




(1) Due to the net loss in the first quarter 2008, 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) Effective January 1, 2008 the Company adopted SFAS No. 157, Fair Value
Measurements, and SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB No.
115. SFAS No. 157 provides a framework for measuring fair value under
GAAP. SFAS No. 159 allows an entity the irrevocable option to elect
fair value for the initial subsequent measurement of certain financial
assets and liabilities on a contract-by-contract basis.



THE PMI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS


Three Months Ended March 31,
2008 2007
(Unaudited)
(Dollars in thousands, except
per share data)
Net premiums written

55,325

44,051
Revenues
Premiums earned

61,965

36,361
Net gain from credit default swaps 800 1,828
Net investment income 58,313 52,639
Net realized investment gains 51,010 1,578
Change in fair value of certain debt
instruments 28,708 -
Impairment of unconsolidated subsidiary (87,981) -
Other income 3,085 2,082
Total revenues 315,900 294,488

Losses and expenses
Losses and loss adjustment expenses 579,794 109,320
Amortization of deferred policy
acquisition costs 9,896 16,445
Other underwriting and operating expenses 58,920 62,701
Interest expense 8,363 8,259
Total losses and expenses 656,973 196,725
(Loss) income before equity in
(losses) earnings from unconsolidated
subsidiaries and income taxes (341,073) 97,763
Equity in (losses) earnings from
unconsolidated subsidiaries (33,477) 36,509
(Loss) income before income taxes (374,550) 134,272
Income tax (benefit) expense (100,586) 32,239
Net (loss) income $(273,964) $102,033
Diluted net (loss) income per share $(3.37) $1.16



THE PMI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


March 31, December 31, March 31,
2008 2007 2007
(Unaudited) (Audited) (Unaudited)
(Dollars in thousands, except per
Assets share data)
Investments $3,925,343 $3,729,151 $3,377,635
Cash and cash equivalents 455,509 427,912 557,605
Investments in unconsolidated
subsidiaries 175,155 309,800 1,129,764
Reinsurance recoverable 131,010 36,917 3,573
Deferred policy acquisition costs 65,951 59,712 88,772
Property, equipment and software,
net of accumulated depreciation
and amortization 159,512 161,762 170,597
Other assets 315,289 345,186 201,699
Total assets $5,227,769 $5,070,440 $5,529,645
Liabilities
Reserve for losses and loss
adjustment expenses $1,729,469 $1,242,599 $443,020
Unearned premiums 626,462 611,247 537,857
Debt 414,378 496,593 496,593
Other liabilities 217,591 207,039 387,214
Total liabilities 2,987,900 2,557,478 1,864,684

Shareholders’ equity 2,239,869 2,512,962 3,664,961
Total liabilities and shareholders’
equity $5,227,769 $5,070,440 $5,529,645

Basic shares issued and outstanding 81,213 81,120 86,835
Book value per share

7.58 $30.98 $42.21


Note: Please refer to The PMI Group, Inc. First Quarter 2008 Financial
Supplement for additional information.



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