PMI's Risk-to-Capital Ratio Looking Dicey

The mortgage insurance division of The PMI Group saw its risk-to-capital ratio fall to 22:1 at yearend, perilously close to the 25:1 ratio that could halt it from writing new business in several states. However, insurance regulators in Arizona, where PMI Mortgage Insurance Co. is domiciled, have granted the MI unit a waiver from having to meet that state's minimum policyholder position requirement. "Based on information obtained from the examination, the Department concluded that PMI currently has sufficient capital and resources to fulfill its current and projected policyholder obligations," according to a letter sent by insurance regulators. Furthermore, Fannie Mae has given conditional approval for another PMI Group subsidiary, PMI Mortgage Assurance Co. (currently called Commercial Loan Insurance Corp.) to issue new policies in states where PMI Mortgage Insurance Co. can no longer write new business. PMAC, following certain internal restructuring and capital initiatives, including a $10 million investment from PMI Mortgage Insurance Co., will hold approximately $28 million of capital. PMAC is also in negotiations with Freddie Mac about becoming an eligible insurer. Both announcements came out a day before PMI Group said it lost $228 million in the fourth quarter, compared with a loss of $179 million one year prior. Its U.S. MI business had a net loss of $242 million in the fourth quarter of 2009 vs. a net loss of $174 million in the fourth quarter of 2008. For the full year 2009, the parent company lost $659 million, an improvement on a net loss of $887 million in 2008.