PMI Will Need to Do More Even After Reducing Risk-to-Capital Ratio

The PMI Group Inc., Walnut Creek, Calif., will still need to raise additional capital, even after it was able to reduce its risk-to-capital ratio from 18.5-to-1 to 16.9-to-1 by contributing all of the common capital shares of its wholly owned subsidiary, PMI Insurance Co., to its primary operating company, PMI Mortgage Insurance Co. There are concerns that not only would PMI breach the 25-to-1 risk-to-capital ratio in place in a number of states, but that it would also breach the 23-to-1 risk-to-capital standard established in its Allstate runoff support agreement, the company said in its most recent 10-Q filing as well as during a conference call. This could occur as early as the fourth quarter of this year. However, analysts at FBR Capital Markets forecast the 23-to-1 level to be breached by the second quarter of 2010. PMI is in the process of readying an existing subsidiary, Commercial Loan Insurance Corp. to start writing business if PMI Mortgage Insurance Co. must cease activities. CLIC is to be renamed PMI Mortgage Assurance Co. PMAC is currently licensed to write insurance in all states except Connecticut, Michigan and New York. The FBR analysts commented, "We expect the risk-to-capital levels to increase from here, unless reinsurance becomes available, outside capital is raised or on the off chance that losses abate." Besides reducing the risk-to-capital ratio, the shift increases the mortgage insurance underwriter's capital by $92.2 million and increases its excess minimum policyholders' position to $307.7 million.